FREE HKDSE PRACTICE PAPER

HKDSE Economics Paper 1 Mock Paper

This one-hour sample contains 45 multiple-choice questions on the compulsory Economics topics. It covers scarcity and opportunity cost, firms and markets, efficiency, national income, money and banking, economic policy and international trade. Each model answer explains the correct option and the distractors.

45 questions45 marks1 hr

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An original AI-generated practice paper from Studify. This is an independent sample, not an official HKEAA paper.

Paper structure

Section A45 questions · 45 marks

Topics in this sample

Basic economic concepts
Market and price
Firms and production
Efficiency, equity and the role of government
Competition and market structure
Measurement of economic performance
National income determination and price level
Macroeconomic problems and policies
Money and banking
International trade and finance

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Hong Kong Diploma of Secondary Education Examination Mock Paper

Economics

Paper 1: Multiple Choice

Time Allowed: 1 hrTotal Marks: 45

INSTRUCTIONS TO CANDIDATES:

This paper consists of multiple sections.
Answer ALL questions in this paper.
Write your answers in the spaces provided.
Unless otherwise specified, all working must be clearly shown.
Unless otherwise specified, numerical answers should be either exact or correct to 3 significant figures.

Generated by studify.life • 16/10/2026

Section A

Question 1

A student spends an afternoon either working part-time or revising for an examination. The opportunity cost of revising is(1 mark)

the money spent on revision materials only.

the value of the best alternative forgone, including the earnings from work.

the value of all alternatives forgone.

zero, because the student does not pay tuition fees.

Question 2

Which statement best illustrates the economic problem of scarcity?(1 mark)

A resource has alternative uses while wants exceed the resources available to satisfy them.

A good is scarce only when its market price is positive.

Every consumer has the same wants but different incomes.

A government can eliminate scarcity by increasing the money supply.

Page2

Question 3

A production possibility boundary shifts outward. Which change could cause this?(1 mark)

A fall in the utilisation of existing resources.

A rise in the general price level.

An improvement in production technology.

A movement from an interior point to a point on the boundary.

Question 4

A consumer's demand for good X increases when the price of good Y rises. X and Y are most likely(1 mark)

complements.

substitutes.

unrelated goods.

inferior goods.

Question 5

In the short run, a firm's total product rises from 100 units to 132 units when labour increases from 5 workers to 6 workers. The marginal product of the sixth worker is(1 mark)

22 units.

27.5 units.

32 units.

132 units.

Page3

Question 6

A firm increases all its inputs by 10% and its output rises by 15%. The firm experiences(1 mark)

decreasing returns to scale.

constant returns to scale.

increasing returns to scale.

diminishing marginal returns to the variable input.

Question 7

A firm's total fixed cost is $500 when it produces 0, 10 or 20 units. When output rises from 10 to 20 units, its average fixed cost(1 mark)

rises from $50 to $100.

falls from $50 to $25.

remains unchanged at $50.

falls to zero.

Question 8

A firm's marginal cost is below its average total cost. As output increases slightly, average total cost will(1 mark)

fall.

rise.

remain unchanged.

become equal to average fixed cost.

Page4

Question 9

The price of a good rises, causing quantity demanded to fall along an unchanged demand curve. This is(1 mark)

a decrease in demand.

an increase in demand.

a contraction in quantity demanded.

a fall in supply.

Question 10

At the prevailing market price, quantity demanded is greater than quantity supplied. In a competitive market, this excess demand tends to cause(1 mark)

downward pressure on price.

upward pressure on price.

a fall in demand.

a permanent increase in supply.

Question 11

Demand for takeaway meals increases while supply decreases. Which conclusion is necessarily correct, assuming the usual downward-sloping demand and upward-sloping supply curves?(1 mark)

Equilibrium price rises, while the effect on equilibrium quantity is uncertain.

Equilibrium price falls, while equilibrium quantity rises.

Equilibrium quantity falls, while equilibrium price is unchanged.

Both equilibrium price and quantity rise.

Page5

Question 12

The price elasticity of demand for a product is -0.4. If its price rises by 10%, the approximate change in quantity demanded is(1 mark)

a 4% increase.

a 4% decrease.

a 25% decrease.

a 10% decrease.

Question 13

A binding price ceiling is imposed below the market equilibrium price. Which outcome is most likely, assuming no other change?(1 mark)

A surplus and a fall in quantity exchanged.

A shortage and a fall in quantity exchanged.

A shortage and an increase in quantity exchanged.

No effect, because the ceiling is legally imposed.

Question 14

A firm in perfect competition is a price taker because(1 mark)

its product has no close substitutes.

it sells a negligible share of a market with many firms and homogeneous products.

it faces a downward-sloping market demand curve as an individual firm.

entry into the industry is legally prohibited.

Page6

Question 15

A monopolistically competitive firm earns supernormal profit in the short run. If entry is free and products are differentiated, entry by new firms tends to(1 mark)

shift the firm's demand curve left and reduce its profit.

shift its marginal cost curve down and increase profit.

make its demand perfectly elastic.

eliminate product differentiation.

Question 16

A dominant firm faces a kinked demand curve because rivals are expected to(1 mark)

match price increases but ignore price decreases.

ignore price increases but match price decreases.

match all price changes exactly.

leave the industry whenever the dominant firm changes price.

Question 17

In the long run, a perfectly competitive firm in equilibrium normally produces where(1 mark)

price equals marginal cost and minimum average total cost.

price is greater than marginal cost and average total cost.

marginal revenue is zero.

price equals average variable cost but is below average total cost.

Page7

Question 18

A factory's emissions impose health costs on nearby residents that are not paid by the factory or reflected in the product's price. This is an example of(1 mark)

a positive production externality.

a negative production externality.

a public good.

a progressive tax.

Question 19

A per-unit tax on a good with a negative production externality is intended primarily to(1 mark)

make producers take more of the external cost into account and reduce output toward the socially efficient level.

increase output by lowering the marginal private cost.

transfer all consumer surplus to producers without affecting output.

ensure that every consumer pays the same total tax regardless of quantity purchased.

Question 20

A tax system is progressive when(1 mark)

the average tax rate rises as income rises.

everyone pays the same absolute amount of tax.

the marginal tax rate is always below the average tax rate.

the tax revenue is used only to fund transfer payments.

Page8

Question 21

A policy redistributes income from higher-income households to lower-income households. Which statement about its effects is most defensible?(1 mark)

It must increase both equity and economic efficiency.

It may improve equity but could create efficiency costs by changing incentives; the net effect depends on the policy and circumstances.

It must reduce equity because market incomes are always equitable.

It has no possible effect on resource allocation.

Question 22

Which item is included in Hong Kong's GDP for a year?(1 mark)

The market value of a newly produced locally made machine sold to a local firm.

The resale value of a second-hand flat, excluding fees for current services.

A cash gift transferred between two Hong Kong households.

The value of unpaid household cooking.

Page9

Question 23

A price index uses a fixed basket. The index rises from 100 to 104 over a year. The measured inflation rate over the year is(1 mark)

Year	Price index
Start of year	100
End of year	104

4%.

104%.

0.4%.

104 index points per year, which is the inflation rate.

Question 24

Real GDP rises by 3% while the population rises by 4%. Approximately, real GDP per capita(1 mark)

rises by 7%.

falls by 1%.

rises by 1%.

is unchanged.

Page10

Question 25

Which statement is a limitation of using real GDP per capita to compare living standards?(1 mark)

It does not by itself show how income is distributed among residents.

It adjusts for changes in the general price level.

It measures only the market value of exports.

It necessarily falls whenever the population rises.

Question 26

In the expenditure approach to measuring GDP, which expression is correct?(1 mark)

GDP = consumption + investment + government expenditure + exports - imports.

GDP = consumption + saving + taxes.

GDP = exports + imports - consumption.

GDP = wages + transfers + household wealth.

Question 27

In a simple Keynesian model, the marginal propensity to consume is 0.8 and there are no taxes or imports. If autonomous investment rises by $20 million, equilibrium income rises by(1 mark)

$20 million.

$80 million.

$100 million.

$400 million.

Page11

Question 28

In an economy with spare capacity, an increase in autonomous expenditure is likely, in the short run, to cause(1 mark)

a rise in real output and aggregate demand, with the size depending on leakages and capacity.

only a rise in the price level, with no change in real output.

a fall in aggregate demand because saving must rise.

a guaranteed equal rise in real output regardless of the marginal propensity to consume.

Question 29

If aggregate demand rises when the economy is already close to full employment, the most likely short-run outcome is(1 mark)

a larger increase in the price level relative to real output than when substantial spare capacity exists.

a fall in the price level because firms face higher demand.

a guaranteed rise in real output with no inflationary pressure.

no change in either output or the price level.

Question 30

An unexpected rise in the price of imported raw materials is most likely to cause(1 mark)

cost-push inflation and a leftward shift of short-run aggregate supply.

demand-pull inflation and a rightward shift of aggregate demand.

a fall in firms' costs and a rightward shift of short-run aggregate supply.

a rise in potential output with no effect on current costs.

Page12

Question 31

Which function of money is illustrated when a Hong Kong shop displays the prices of goods in Hong Kong dollars?(1 mark)

Medium of exchange.

Store of value.

Unit of account.

Standard of deferred payment.

Question 32

A commercial bank approves a new loan and credits the borrower's deposit account. This transaction can(1 mark)

create a bank deposit and expand the money supply, subject to banking constraints.

reduce the borrower's deposit and automatically destroy all bank money.

create central bank notes without any bank liabilities.

increase the bank's reserves by the full loan amount in every case.

Page13

Question 33

The Hong Kong dollar operates under a linked exchange rate system. Which statement best describes the main implication for monetary policy?(1 mark)

The authorities can freely set any interest rate independently of conditions affecting the US dollar without pressure on the link.

Maintaining the link constrains monetary autonomy, so local interest rates are influenced by the need to defend the exchange-rate arrangement.

The link guarantees that Hong Kong's inflation rate always equals that of the United States.

The link prevents all changes in Hong Kong's money supply.

Question 34

A central bank raises its policy interest rate. Other things being equal, which transmission mechanism is most likely to reduce aggregate demand?(1 mark)

Borrowing becomes more expensive, discouraging some consumption and investment.

The opportunity cost of holding money falls, automatically raising spending.

Firms' expected costs fall, increasing investment in every industry.

Household saving becomes less attractive, reducing consumption and investment.

Page14

Question 35

A fall in real GDP over a sustained period accompanied by rising unemployment is most directly associated with(1 mark)

recessionary pressure.

demand-pull inflation.

a current-account surplus by definition.

a rise in potential output.

Question 36

During a downturn, the government increases spending on locally provided infrastructure while holding taxes unchanged. The most direct short-run effect is likely to be(1 mark)

a rise in aggregate demand, with a possible multiplied increase in output if spare capacity exists.

a fall in aggregate demand because government spending is a leakage.

an immediate increase in potential output equal to the full spending amount.

a guaranteed reduction in the price level and no change in employment.

Question 37

Which is an automatic stabiliser?(1 mark)

A discretionary public works programme approved after a recession begins.

Progressive income tax revenue falling automatically when incomes fall.

A central bank decision to raise interest rates after a meeting.

A one-off change in the exchange-rate regime.

Page15

Question 38

An economy faces persistent demand-pull inflation. Which policy package is most likely to reduce inflationary pressure, though it may also slow output growth in the short run?(1 mark)

Expansionary fiscal policy and lower interest rates.

Contractionary fiscal policy and higher interest rates.

A subsidy that increases total spending and a reduction in taxes.

A general increase in government purchases financed by borrowing.

Question 39

A government wants to reduce structural unemployment caused by a mismatch between workers' skills and available jobs. Which policy is most directly targeted at this cause?(1 mark)

Retraining and job-matching support for affected workers.

A temporary reduction in interest rates intended only to increase aggregate demand.

A tax on all firms that employ new workers.

A policy that prevents workers from moving between occupations.

Page16

Question 40

A government plans a large infrastructure programme during a period of high public debt and near-full employment. Which assessment is most reasonable?(1 mark)

It must raise long-run welfare because all infrastructure projects have benefits greater than costs.

It may raise productive capacity if projects are worthwhile, but financing costs, opportunity costs and short-run inflationary pressure should be assessed.

It cannot affect aggregate demand because infrastructure is a capital good.

It necessarily reduces public debt because all government spending is self-financing.

Question 41

Country A can produce either 12 units of rice or 6 units of textiles using the same resources. Country B can produce either 8 units of rice or 8 units of textiles. Which statement is correct?(1 mark)

A has a comparative advantage in both goods because it produces more rice.

A has a comparative advantage in rice, while B has a comparative advantage in textiles.

B has a comparative advantage in both goods because it produces more textiles.

Neither country can gain from trade because their production possibilities differ.

Page17

Question 42

A tariff is imposed on an imported good in a small importing country. Assuming no other changes, the tariff is most likely to(1 mark)

raise the domestic price, increase domestic production and reduce domestic consumption of the good.

lower the domestic price and increase imports.

leave the domestic price unchanged because the country is small.

raise world supply and guarantee a net gain in national welfare.

Question 43

If the Hong Kong dollar appreciates against another currency, other things being equal, which effect is most likely?(1 mark)

Hong Kong exports become cheaper to foreign buyers and imports become more expensive to Hong Kong buyers.

Hong Kong exports become more expensive to foreign buyers and imports become cheaper to Hong Kong buyers.

Both exports and imports become cheaper to Hong Kong residents.

The exchange-rate change has no possible effect on trade flows.

Page18

Question 44

A country's current account records a deficit in a particular year. Which statement is correct?(1 mark)

The country must have had a government budget deficit in the same year.

Its recorded current-account payments exceed receipts, but this alone does not establish that the deficit is unsustainable or undesirable.

Its exports of goods must exceed its imports of goods.

It has no capital or financial account transactions.

Question 45

An economy's currency depreciates. Its export demand is price elastic and its import demand is price inelastic in the short run. Which conclusion is most appropriate, other things being equal?(1 mark)

The value of exports is likely to rise and the value of imports is likely to rise, so the trade balance must improve immediately.

Export quantities may respond substantially, while import quantities respond less; the value of the trade balance need not improve immediately and may follow a J-curve pattern.

Export quantities must fall because foreign buyers pay fewer units of the depreciating currency.

The trade balance must remain unchanged because depreciation affects only financial transactions.

Page19

Model answers

Choose a question to reveal the saved solution and marking guidance. Try it yourself first.

Question 11 mark

Correct option: B

1: B. The opportunity cost is the value of the next-best alternative forgone, here the earnings from working. A omits the forgone alternative; C includes every alternative rather than the best one; D ignores the non-monetary cost of time. A1 for B.

Question 21 mark

Correct option: A

2: A. Scarcity arises because resources are limited relative to wants and have alternative uses. B confuses scarcity with a market price; C is not necessary for scarcity; D does not increase real resources or remove the underlying constraint. A1 for A.

Question 31 mark

Correct option: C

3: C. Better technology increases productive capacity and shifts the boundary outward. A may move production inside the boundary; B changes nominal values, not capacity; D is a movement toward the existing boundary. A1 for C.

Question 41 mark

Correct option: B

4: B. A higher price of Y makes X relatively more attractive if they are substitutes, raising demand for X. A predicts lower demand for X; C predicts no systematic cross-price effect; D concerns the income-demand relationship. A1 for B.

Question 51 mark

Correct option: C

5: C. Marginal product is the change in total product: 132 - 100 = 32 units. A is average product at six workers; B divides total product by labour; D is total product. A1 for C.

Question 61 mark

Correct option: C

6: C. Output rises proportionately more than all inputs, so returns to scale are increasing. A and B contradict the stated output response; D concerns changing one variable input while other inputs are fixed. A1 for C.

Question 71 mark

Correct option: B

7: B. Average fixed cost is TFC divided by output: 500/10 = $50 and 500/20 = $25. A reverses the calculation; C ignores the larger denominator; D incorrectly treats fixed cost as disappearing. A1 for B.

Question 81 mark

Correct option: A

8: A. When marginal cost is below average total cost, the additional unit costs less than the current average and pulls that average down. B reverses this relationship; C would require marginal cost to equal average cost; D confuses cost concepts. A1 for A.

Question 91 mark

Correct option: C

9: C. A change in the good's own price causes movement along the demand curve, here a contraction in quantity demanded. A and B are shifts caused by non-price determinants; D concerns sellers. A1 for C.

Question 101 mark

Correct option: B

10: B. Buyers compete for the limited quantity, creating upward pressure on price. A is the pressure associated with excess supply; C and D are not automatic consequences of excess demand. A1 for B.

Question 111 mark

Correct option: A

11: A. Higher demand and lower supply both raise equilibrium price. Their quantity effects are opposite, so the net quantity change cannot be determined without magnitudes. B and C give unsupported directions; D assumes demand's quantity effect dominates. A1 for A.

Question 121 mark

Correct option: B

12: B. Percentage change in quantity demanded is approximately PED times percentage change in price: -0.4 × 10% = -4%. A has the wrong sign; C inverts the elasticity incorrectly; D assumes unit elasticity. A1 for B.

Question 131 mark

Correct option: B

13: B. Below-equilibrium price makes quantity demanded exceed quantity supplied, creating a shortage. The quantity actually exchanged is constrained by the smaller quantity supplied and falls. A describes a price floor; C ignores the supply constraint; D is false for a binding ceiling. A1 for B.

Question 141 mark

Correct option: B

14: B. A single firm is too small to influence the market price when there are many sellers of a homogeneous product. A and C better describe market power; D is a barrier to entry, not a feature of perfect competition. A1 for B.

Question 151 mark

Correct option: A

15: A. Entry gives consumers more close substitutes, reducing each existing firm's demand and tending to erode supernormal profit. B asserts an unrelated cost change; C is not implied by differentiation; D wrongly assumes products become identical. A1 for A.

Question 161 mark

Correct option: B

16: B. Rivals are expected not to follow a price rise, causing a relatively elastic demand segment above the current price, but to match a price cut, causing a less elastic segment below it. A reverses the standard prediction; C and D do not generate the kink. A1 for B.

Question 171 mark

Correct option: A

17: A. Long-run competitive equilibrium combines profit maximisation, P = MC, with free entry and exit eliminating economic profit, so P = minimum ATC. B implies market power or disequilibrium; C is not the competitive output condition; D describes a short-run shutdown-related condition, not long-run equilibrium. A1 for A.

Question 181 mark

Correct option: B

18: B. The factory's production imposes an uncompensated external cost on third parties. A has the wrong sign; C concerns non-rivalry and non-excludability; D is a tax structure. A1 for B.

Question 191 mark

Correct option: A

19: A. A corrective tax raises private cost toward social cost, discouraging excessive production and improving allocative efficiency if calibrated appropriately. B reverses the cost effect; C is not the tax's primary purpose and output would generally change; D describes a lump-sum rather than per-unit tax. A1 for A.

Question 201 mark

Correct option: A

20: A. Progressivity means the average tax rate increases with income. B describes a fixed lump-sum payment; C is not the defining condition; D concerns expenditure rather than tax incidence. A1 for A.

Question 211 mark

Correct option: B

21: B. Redistribution can narrow income disparities, improving equity, while taxes or transfers may alter work, saving or investment incentives. The magnitude and net welfare effect are empirical and policy-dependent. A makes an unjustified certainty; C assumes market outcomes are necessarily equitable; D ignores incentive effects. A1 for B.

Question 221 mark

Correct option: A

22: A. GDP includes current production of final goods and services within the territory; a newly produced machine is current investment. B is an existing asset (though current brokerage services count); C is a transfer; D is unpaid non-market production. A1 for A.

Question 231 mark

Correct option: A

23: A. Inflation rate = (104 - 100)/100 × 100% = 4%. B confuses the index level with the rate; C miscalculates the percentage change; D confuses index points with a percentage rate. A1 for A.

Question 241 mark

Correct option: B

24: B. Per-capita growth is approximately real GDP growth minus population growth: 3% - 4% = -1%. A adds the rates; C reverses their order; D ignores their different growth rates. A1 for B.

Question 251 mark

Correct option: A

25: A. Per-capita GDP is an average and does not reveal distribution, unpaid work, leisure, environmental quality or other dimensions of welfare. B is a strength of real rather than nominal GDP; C is incorrect; D is not necessarily true because total real GDP may grow faster than population. A1 for A.

Question 261 mark

Correct option: A

26: A. The expenditure identity is C + I + G + (X - M). Imports are subtracted because they are included in expenditure but are not domestic production. B is not an expenditure identity; C omits major components and gives the trade term wrongly; D mixes income and transfer/stock concepts. A1 for A.

Question 271 mark

Correct option: C

27: C. The multiplier is 1/(1 - MPC) = 1/0.2 = 5. The income change is 5 ×

20 million =

100 million. A ignores induced spending; B uses an incorrect multiplier; D multiplies by 20. A1 for C.

Question 281 mark

Correct option: A

28: A. With spare capacity, higher autonomous spending raises aggregate demand and can increase real output through induced expenditure. B fits a fully constrained supply situation more closely; C reverses the demand effect; D ignores the multiplier and leakages. A1 for A.

Question 291 mark

Correct option: A

29: A. Near capacity, supply is less able to respond with higher real output, so stronger AD is more likely to put upward pressure on the price level. B reverses the demand effect; C ignores capacity constraints; D assumes no response. A1 for A.

Question 301 mark

Correct option: A

30: A. Imported inputs become more expensive, raising production costs and shifting short-run aggregate supply left; this is cost-push pressure. B confuses a cost shock with stronger aggregate demand; C gives the opposite cost and supply effects; D is unrelated. A1 for A.

Question 311 mark

Correct option: C

31: C. Money as a unit of account provides a common measure for stating and comparing prices. A concerns payment in transactions; B concerns holding purchasing power; D concerns settling future obligations. A1 for C.

Question 321 mark

Correct option: A

32: A. Lending can create a deposit, which is part of the money supply; the extent is constrained by capital, liquidity, risk, regulation and demand for loans. B reverses the initial deposit effect; C confuses deposit money with notes; D does not follow because the loan creates an asset and deposit liability, not necessarily matching reserves. A1 for A.

Question 331 mark

Correct option: B

33: B. Under the linked exchange rate, interest-rate and monetary conditions are constrained by the commitment to maintain convertibility and the exchange-rate link. A overstates independent discretion; C ignores differences in economic structures and shocks; D incorrectly claims the money supply cannot change. A1 for B.

Question 341 mark

Correct option: A

34: A. Higher interest rates raise borrowing costs and the return to saving, tending to reduce interest-sensitive consumption and investment. B reverses the opportunity-cost effect; C is not the usual interest-rate channel; D gives the wrong saving incentive. A1 for A.

Question 351 mark

Correct option: A

35: A. Falling real activity and rising unemployment indicate recessionary pressure. B is associated with excess demand and rising prices; C is unrelated and not definitional; D concerns productive capacity, not necessarily current output. A1 for A.

Question 361 mark

Correct option: A

36: A. Government purchases directly increase AD and can generate further induced spending, especially with spare capacity. B misclassifies government purchases as a leakage; C confuses current demand with an immediate equal increase in productive capacity; D makes unsupported claims. A1 for A.

Question 371 mark

Correct option: B

37: B. Progressive tax receipts fall as income falls without a new policy decision, supporting disposable income relative to the downturn. A and C require discretionary decisions; D is a structural regime change, not an automatic stabiliser. A1 for B.

Question 381 mark

Correct option: B

38: B. Lower government expenditure or higher taxes and higher interest rates reduce components of AD, easing demand-pull inflation but risking lower output and employment. A, C and D are generally expansionary and could add to AD. A1 for B.

Question 391 mark

Correct option: A

39: A. Retraining and matching address the skills or location mismatch underlying structural unemployment. B targets cyclical demand deficiency more directly; C raises the cost of hiring; D worsens labour mobility and mismatch. A1 for A.

Question 401 mark

Correct option: B

40: B. Well-selected infrastructure may improve productivity and potential output, but project appraisal must compare social benefits with resource and financing costs. Near full employment, additional spending can also crowd out private use of resources or add inflationary pressure; existing debt makes financing relevant. A and D assert unjustified guarantees; C overlooks investment as aggregate demand. A1 for B.

Question 411 mark

Correct option: B

41: B. A's opportunity cost of one rice is 0.5 textile, compared with B's 1 textile, so A has comparative advantage in rice. A's cost of one textile is 2 rice, compared with B's 1 rice, so B has comparative advantage in textiles. A and C confuse absolute productivity with comparative advantage; D is false. A1 for B.

Question 421 mark

Correct option: A

42: A. In a small country, the world price is given; the tariff raises the domestic price, encouraging domestic supply and reducing domestic demand, so imports fall. B reverses the effects; C mistakes price-taking internationally for no domestic price effect; D confuses domestic policy with world supply and ignores efficiency losses. A1 for A.

Question 431 mark

Correct option: B

43: B. Appreciation raises the foreign-currency price of Hong Kong exports and lowers the Hong Kong-dollar price of imports, other things equal. A reverses both effects; C does not distinguish the buyer's currency; D ignores relative-price effects. A1 for B.

Question 441 mark

Correct option: B

44: B. A current-account deficit means current-account debits exceed credits. Its implications depend on causes, financing, sustainability and the wider economy. A confuses the fiscal and external balances; C refers only to goods and gives the wrong necessary condition; D is false because balance-of-payments accounts have offsetting financial flows and other entries. A1 for B.

Question 451 mark

Correct option: B

45: B. Depreciation makes exports relatively cheaper and imports dearer. Elastic export demand allows a comparatively large quantity response, while inelastic import demand limits its short-run reduction; contract and price adjustments can delay improvement in the trade balance, producing a possible J-curve. A overstates certainty and mishandles values; C reverses the likely export response; D ignores trade-price effects. A1 for B.