HKCEE ECONOMICS | 9.3 Changes in the general price level | P.

1. 1990/I/3b
(i) Explain how a depreciation of the Hong Kong dollar might lead to a higher inflation rate in Hong Kong.
(6 marks)
(ii) Explain whether the following persons would gain or lose in times of inflation:
(I) a businessman who has borrowed money from a bank at a fixed interest rate
(II) a landlord whose premises have already been let at a fixed rent for the coming two years
(6 marks)
2. 1992/I/5cii,iii
It has now been decided that a new airport will be built at Chek Lap Kok.
(ii) What is meant by inflation? (2 marks)
(iii) Explain briefly how the construction of the new airport might cause inflation in Hong Kong.
(4 marks)
3. 1993/I/1e
Explain whether ‘Yummy Yummy’ will gain or lose if inflation occurs unexpectedly after
(i) it has signed a contract with a hospital to supply a standardized lunch package to the patients at a fixed
price for a year.
(ii) it has deposited a sum of money with a bank at a fixed interest rate. (6 marks)

4. 1996/I/6
Year Price index (year average) Peter’s salary
1994 120 $10 000
1995 150 $12 000
From the above data, explain whether Peter’s real wage in 1995 has increased when compared to that in
1994. (3 marks)

5. 1998/I/7a
Define ‘inflation’. (2 marks)

6. 1999/I/11c
Some taxi-drivers buy taxis by borrowing from banks. If the general price level goes down unexpectedly,
explain under what circumstances these taxi-drivers will
(i) lose.
(ii) have no gain or loss. ( 6 marks)

7. 2001/I/9d
‘If an import tax is introduced on all imports to Hong Kong, it would affect Hong Kong’s general price level
but would not necessarily lead to inflation in Hong Kong.’ Explain why this statement is correct. (5 marks)

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 HKCEE ECONOMICS | 9.3 Changes in the general price level | P.2

8. 2003/I/9c
Explain whether the following persons would gain or lose in times of unexpected deflation.
(i) Suppose an individual has borrowed a housing mortgage loan from a bank at a fixed interest rate.
(ii) Suppose a retired civil servant receives a fixed monthly pension from the government. (6 marks)

9. 2005/I/7
Answer Question 9 by referring to the following information about the Gross Domestic Product (GDP) of
Hong Kong.
Year Implicit price Per capita GDP at current market
deflator of GDP prices (HK$)
2001 98.1 188835
2002 94.6 183790
2003 89.6 179333
Table 1
Suppose people did not expect any change in the price level. Explain whether the following persons would
gain or lose when the change in the price level indicated in Table 1 occurred.
(a) a businessman who obtained a bank loan in 2001 at a fixed interest rate for 2 years
(b) a businessman whose premises were let in 2001 at a fixed rent for 2 years (4 marks)

10. 2007/I/4
The table below shows the gross domestic product (GDP) statistics of Hong Kong :
Year GDP at current GDP at constant (2000) GDP deflator
market prices market price
2003 1 233 983 1 390 610 88.7
2004 1 291 568 1 510 182 85.5
2005 1 382 052 1 619 984 A
(a) The value of A is ___________________. (1 mark)
(b) Suppose people did not expect any change in the price level in years 2003 to 2005. Explain whether
the following persons would gain or lose when the changes in the price level indicated in the above
table occurred.
(i) a retired civil servant who receives a fixed monthly pension from the government
(ii) a person who borrowed a sum of money in 2003 from a bank at a fixed interest rate and repaid
the loan in 2005 (6 marks)

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