Business Cycles, Unemployment & Changes of Price Levels (04/B7) Give TWO losses to society caused by unemployment.

(4 marks)

P.1

6 6 6

productive resources will be left idle / output level will be lower political disorder / social unrest loss of skills 2@, max (4)

[ Remark : Mark the FIRST TWO points only ]

(05/A7)T e !ollo"in# in!ormation is about t e Gross $omestic %roduct (G$%) o! &on# 'on#. 2ear 3mplicit price %er capita G$% at current market prices de!lator o! G$% (&'1) -00( /4.( (44455 -00/4.. (457/0 -005 4/.. (7/555 Table () *uppose people did not e+pect any c an#e in t e price level. ,+plain " et er t e !ollo"in# persons "ould #ain or lose " en t e c an#e in t e price level indicated in Table ( occurred. (a) a businessman " o obtained a bank loan in -00( at a !i+ed interest rate !or - years (b) a businessman " ose premises "ere let in -00( at a !i+ed rent !or - years (4 marks)

(a) He would lose as (1) he repa s a fixed amount of mone , the purchasin! power of which has increased because of unexpected deflation (1) (b) He would !ain as (1)
(0./B/) (c) in t e summer o! last year0 t e #ro"in# business o! many retail s ops lead to an increase in t e employed population in &on# 'on#. &o"ever0 t e unemployment rate durin# t e same period o! time remained unc an#ed. ,+plain " y t e unemployment rate can still remain unc an#ed in spite o! an increase in t e employed population. (4 marks)

6 6 6

unemplo ment rate " unemplo ed population x 1## $ labour force (1) the unemplo ed population increased (1) and both the labour force and the unemplo ed population increased at the same

(07/A4) T e table belo" s o"s t e #ross domestic product (G$%) statistics o! &on# 'on# ) (&'1 million) 2ear -005 -004 -005 G$% at current market prices ( -55 /45 ( -/( 5.4 ( 54- 05G$% at constant (-000) market prices ( 5/0 .(0 ( 5(0 (4( .(/ /44 G$% de!lator 44.7 45.5 A

Business Cycles, Unemployment & Changes of Price Levels

P.2

(a) T e value o! A is 77777777777.

(( mark)

(b) *uppose people did not e+pect any c an#e in t e price level in years -005 to -005. e+plain " et er t e !ollo"in# persons "ould #ain or lose " en t e c an#es in t e price level indicated in t e above table occurred. (i) a retired civil servant " o receives a !i+ed mont ly pensions !rom t e #overnment (ii) a person " o borro"ed a sum o! money in -005 !rom a bank at a !i+ed interest rate and repaid t e loan in -005. (. marks)

(a) -./0 (1) (b) %he table indicates a decrease in the !eneral price level (2) (i) He would !ain because the fixed amount of pension has a hi!her purchasin! power (in times of unexpected deflation) (2)
(07/B4) T e universities in &on# 'on# do not only admit local students. *ince last year0 universities ave be#un to admit a lar#e number o! top68uality 9ainland students. *uppose all students pay t e same tuition !ees. (b) *uppose t ese top68uality 9ainland students stay and "ork in &on# 'on# a!ter t eir #raduation and t e total number o! :ob positions in &on# 'on# remains unc an#ed. (i) ,+plain o" t is situation "ould a!!ect t e unemployment rate o! &on# 'on#. (4 marks)

(ii) He would loss because the real vale of the repa ment will increase (durin!

6 6

%otal labour force increases (1) &nemplo ed population increases (1) ('iven total emplo ment remains unchan!ed,) (ncrease ( total labout force " increase in unemplo ed population )* $ increase in the unemplo ed population + $ increase in the labour force (1) ,s a result, unemplo ment rate increases (1)

6 6

(04/A/5) ;e!er to t e business cycle s o"n belo". 3denti!y t e p ase " ic point A is in. Apart !rom t e in!ormation about t e real #ross domestic product (G$%) #ro"t rate in t is p ase0 #ive T<= #eneral economic p enomena " ic occur in t is p ase. (5 marks)

Business Cycles, Unemployment & Changes of Price Levels

P.3

*ecover / (1) 6 emplo ment increases 6 a!!re!ate demand increases/private consumption expenditure increases/investment increases 6 !eneral price level increases 1@ max/ 2
(0//A5) ;e!er to t e !ollo"in# in!ormation on economy A. 2ear Gro"t rate o! G$% de!lator -00. >5? -007 >4? -004 >-? (a) < at is in!lation@ (- marks) (b) *uppose people did not e+pect any c an#e in t e price level in years -00. to -004. 3n -00.0 % elps borro"ed a ousin# mort#a#e loan !rom a bank at a !i+ed interest rate. ,+plain " et er % elps "ould #ain or lose " en t e c an#es indicated in t e above table occurred. (5 marks)

(a) (nflation is a continuous rise in !eneral price level/ (2) (b) He would !ain (1) 1ecause the real value of his loan repa ment will decrease/ (2)
((0/A7) ;e!er to t e business cycle s o"n belo".

(a) %oint A is in t e 7777777777777 p ase o! t e business cycle. (( mark) (b) Apart !rom t e c an#e in t e real #ross domestic product (G$%) #ro"t rate0 #ive T<= #eneral economic p enomena " ic occur in t is p ase. (- marks) (c) $urin# t is p ase o! t e business cycle0 t e nominal "a#e rate o! some "orkers "as reduced. ,+plain " et er t eir real "a#e rate must also ave decreased. (5 marks)

(a) *ecession (1) (b) 2 unemplo ment rate increases 6 ,!!re!ate demand decreases / private consumption expenditure decreases / investment decreases 6 (nflation rate decreases

Business Cycles, Unemployment & Changes of Price Levels

P.4

6 ,n other relevant point [ M a r k t h e FIRST T WO poin ts only. ]

1@ m ax , 2

(c) 3ot necessaril decreased, because (1) %he real wa!e rate will increase if the percenta!e decrease in the !eneral price level is !reater than the percenta!e decrease in the nominal wa!e rate/ (2)
((0/B((a) T e -004 !inancial tsunami ad a u#e impact on ,conomy A. (a) Given a !i+ed "a#e rate0 e+plain "it t e aid o! a supply6demand dia#ram " y a decline in t e business o! t e !inancial sector due to t e !inancial tsunami "ould increase unemployment in t is sector. Also0 indicate in t e dia#ram t e loss in total "a#e earnin#s o! t e employees in t is sector. (/ marks)

(a)

(b) (ndicate in the dia!ram4 6 5a!e rate 5 above the initial e6uilibrium wa!e rate at 71 6 (nitial excess suppl ab 6 81 shifts to 82 6 9b" the new excess suppl 6 ,rea cd!a " total wa!e loss

(1) (1) (1) (1) (1)

:erbal elaboration4 6 (nitial wa!e rate is hi!her than the initial e6uilibrium wa!e rate / (nitiall , 6uantit supplied is !reater than 6uantit demanded b ab (1) 6 8emand for the emplo ees falls/ (1) 6 3ew excess suppl cb (1) 6 (s lar!er than initial excess suppl ab/ (1)

HKDSE (%ractice %aper) ((-/A.) T e !ollo"in# is a ne"s report about ,conomy A. *killed construction "orkers are in #reat demand a!ter t e launc o! t e construction pro:ect o! a ne" i# 6speed rail"ay system. As #overnment o!!icial as announced t e introduction o! a labour importation sc eme to meet t e need !or skilled "orkers. *uppose t e imported "orkers do not replace any o! t e domestic "orkers. ,+plain o" t e unemployment rate "ill be a!!ected by t e sc eme. (4 marks)

&nemplo ment rate number of unemplo ed ; labour force < 1##$ =abour force increases

(1) (1)

Business Cycles, Unemployment & Changes of Price Levels

P.

while the number of unemplo ed remains unchan!ed and the unemplo ment rate will decrease/
($*,)(-/A.. ;isin# unemployment is one o! t e p enomena " ic occurs durin# economic recession.

(1) (1)

(a) *tate TWO losses to society caused by unemployment. (- marks) (b) =t er t an risin# unemployment0 #ive TWO ot er economic p enomena " ic "ould occur durin# economic recession. (- marks)

(a)

2 =oss of output 2 =oss of human capital 2 >olitical unrest 2 ,n other relevant point @Aark the B(*C% %5) points onl /D

@1? max4 2

(b)

2 Ballin! or even ne!ative real '8> !rowth 2 =ow/fallin! inflation or even deflation 2 Ballin! business confidence, levels of investment, consumption @1? max4 2 2 ,n other relevant point @Aark the B(*C% %5) points onl /D

((-/B(() ;ead t e !ollo"in# ne"s e+tract. &on# 'on#As in!lation rate rose to 7./? last mont B t e s arpest :ump in (. years B con!irmin# " at many !amilies already !eared as t ey stru##le to keep up "it t e runa"ay cost o! !ood and rent CC (a) < at is in!lation@ (- marks) (b) 9any "orkers ave t eir salaries increased durin# in!lation. ,+plain " et er t e real income o! t ese "orkers "ould necessarily rise. (5 marks)

(a) >ersistent increase in the !eneral price level (2) (b) 3o, because (1) the real income of workers would fall if the percenta!e increase in price level is !reater than the percenta!e increase in nominal wa!e/ (2)
((5/B(() T e #overnment as launc ed t e D<ork 3ncentive Transport *c emeE0 "it t e !ollo"in# ob:ective) (() To relieve t e burden o! travellin# e+penses commutin# to and !rom "ork on t e part o! lo"6 income ouse olds "it employed members. (-) To promote sustained employment. Application must meet t e mont ly income and asset limits o! t e ouse old (e.#. !or a sin#le person0 t e mont ly income cannot e+ceed 17 500 and t e assets cannot e+ceed 17- 000) and "ork no less t an 7- ours per mont in order to apply !or a subsidy o! 1.00 per mont . (a) $o you t in# t at t e sc eme can ac ieve t e above t"o ob:ectives. ,+plain. (4 marks) (b) $iscuss t e e!!ects o! t e sc eme on (iii) t e unemployment rate. (/ marks) (a) )bEective (1)4 Fes, as it provides cash subsidies relievin! the burden on travellin! expenses (2) )bEective (2)4 Fes, if the 5(%CC continues to subsidiGe the workers on travellin! expenses/ )* )bEective (2)4 3o, as emplo ment (as well as unemplo ment) lar!el depends on the a!!re!ate demand and suppl of the econom (which ma fluctuate over time rather than the 5(%CC/ (an )37, 2) (b) (iii) %he effect on unemplo ment rate is uncertain/ %he total number of labour force will increase while the total number of unemplo ed ma also increase as some people ma be

Business Cycles, Unemployment & Changes of Price Levels P.! attracted to look for Eobs but the ma not be able to !et one/ (t depends on the percenta!e increase in unemplo ed population and the percenta!e increase in the labour force/ (0)