Macroeconomics Australia 7th Edition

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Exam

Name___________________________________

MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question.

1) The demand curve for Australian dollars slopes downward because as the Australian dollar 1)
________ Australian goods become ________ expensive to foreign residents, so they purchase fewer
Australian goods, and the quantity of Australian dollars demanded decreases.
A) depreciates; more B) appreciates; less
C) appreciates; more D) depreciates; less
Answer: C
Explanation: A)
B)
C)
D)

2) When the exchange rate falls, in the foreign exchange market the 2)
A) quantity demanded of the currency increases.
B) demand for the currency increases.
C) demand for the currency decreases.
D) quantity demanded of the currency decreases.
Answer: A
Explanation: A)
B)
C)
D)

3) Interest rates in Australia rise relative to interest rates in other countries. As a result, in the foreign 3)
exchange market
A) there is an upward movement along the supply curve of Australian dollars.
B) the demand curve for Australian dollars shifts leftward.
C) the supply curve of Australian dollars shifts rightward.
D) the supply curve of Australian dollars shifts leftward.
Answer: D
Explanation: A)
B)
C)
D)

4) If the Reserve Bank raises Australian interest rates, the demand for dollars ________ and the 4)
exchange rate ________.
A) decreases; falls B) decreases; rises C) increases; falls D) increases; rises
Answer: D
Explanation: A)
B)
C)
D)

1
 5) Today, the dollar is worth 1.15 euros. Due to changes in economic conditions, people come to 5)
expect the dollar will be worth 1.20 euros in one month. This belief
A) increases the demand for dollars. B) increases the value of exports to Europe.
C) decreases the demand for dollars. D) increases the demand for euros.
Answer: A
Explanation: A)
B)
C)
D)

6) Important factors that change the demand for dollars and shift the demand curve for dollars 6)
include which of the following?
I. Interest rates around the world
II. The current exchange rate
III. The expected future exchange rate
A) I and II B) II C) I and III D) I, II and III
Answer: C
Explanation: A)
B)
C)
D)

Expected future value of Australian dollar

Investor (Yen per dollar)
Investor A 120
Investor B 100
Investor C 85

7) Using the table above, if the current market value of the Australian dollar is 70 yen, 7)
A) investor A holds francs, but B and C hold Australian dollars.
B) investor A holds dollars, but B and C hold yen.
C) all three investors hold Australian dollars.
D) all three investors hold yen.
Answer: C
Explanation: A)
B)
C)
D)

8) In 2010/11, the Australian capital and financial account had a 8)

A) deficit of $33 billion. B) surplus of $33 billion.
C) surplus of $36 billion. D) deficit of $36 billion.
Answer: C
Explanation: A)
B)
C)
D)

2
 9) If the Australian dollar's value changes from 100 yen per dollar to 95 yen per dollar, the Australian 9)
dollar has
A) devalued. B) appreciated. C) depreciated. D) demanded.
Answer: C
Explanation: A)
B)
C)
D)

10) China has used a fixed yuan exchange rate and a crawling peg exchange rate. In both cases, China 10)
pegs its currency to the
A) Japanese yen. B) U.S. dollar.
C) Australian dollar. D) euro.
Answer: B
Explanation: A)
B)
C)
D)

11) If the interest rate on Japanese yen assets falls, the 11)
A) quantity of dollars demanded will decrease.
B) quantity of dollars demanded will increase.
C) demand for dollars will increase.
D) demand for dollars will decrease.
Answer: C
Explanation: A)
B)
C)
D)

12) When a good is imported into Australia, there is created a 12)

A) supply of foreign currency with no effect on the market for the Australian dollar.
B) demand for foreign currencies and a supply of Australian dollars.
C) supply of foreign currencies and a demand for Australian dollars.
D) demand for Australian dollars with no effect on the markets for foreign currencies.
Answer: B
Explanation: A)
B)
C)
D)

13) Suppose a Japanese bank offers a 4 per cent interest rate and Australian banks offer a 2 per cent 13)
interest rate. People must expect the yen to
A) depreciate by 2 per cent. B) appreciate by 2 per cent.
C) appreciate by 6 per cent. D) depreciate by 6 per cent.
Answer: A
Explanation: A)
B)
C)
D)

3
 14) If a country is currently lending more to the rest of the world than it is borrowing from the rest of 14)
the world, the country is a
A) net borrower. B) net lender. C) creditor nation. D) debtor nation.
Answer: B
Explanation: A)
B)
C)
D)

Amount
Component (billions of dollars)
Investment, I 700
Net taxes, T 1,300
Government expenditure, G 1,200
Exports, X 1,500
Imports, M 1,700

15) In the above table, saving is 15)

A) -$300 billion. B) $400 billion. C) $300 billion. D) -$400 billion.
Answer: B
Explanation: A)
B)
C)
D)

16) In the long run, the nominal exchange rate 16)

A) is fixed by world central banks, as indicated by the fixed exchange rate system.
B) is a monetary phenomenon, determined by the quantities of money in two countries.
C) is not related to the real exchange rate, since the real exchange rate is the true value of
currencies.
D) will not change if prices in one country change, since prices are nominal variables.
Answer: B
Explanation: A)
B)
C)
D)

17) The government sector balance is equal to ________. 17)

A) tariffs minus imports
B) net taxes minus government purchases of goods and services
C) saving minus investment
D) exports minus imports
Answer: B
Explanation: A)
B)
C)
D)

4
18) Suppose the exchange rate of Australian dollar was 80 Japanese yen per Australian dollar on 18)
Thursday, and on Friday the exchange rate was 90 Japanese yen per Australian dollar. Which of the
following BEST explains what has happened between Thursday and Friday?
A) The Australian dollar appreciated against the Japanese yen.
B) The Japanese yen appreciated against the Australian dollar.
C) The Japanese yen depreciated against the Australian dollar.
D) Both answers A and C are correct.
Answer: D
Explanation: A)
B)
C)
D)

19) In the figure above, the shift in the demand curve for Australian dollars from D0 to D2 could occur 19)
when
A) people expect that the dollar will appreciate.
B) foreign interest rates fall.
C) the Australian interest rate rises.
D) the Australian interest rate falls.
Answer: D
Explanation: A)
B)
C)
D)

5
20) The balance of payments account which records foreign investment in Australia and Australian 20)
investments abroad is the
A) official settlements account.
B) current account.
C) capital and financial account.
D) None of the above because foreign investment in Australia is included in one account and
Australian investment abroad is included in another account.
Answer: C
Explanation: A)
B)
C)
D)

21) Which of the following statements is true? 21)

A) If private investment is greater than private saving, then either the government or the net
export sector must have a surplus.
B) If private investment is greater than private saving, then the private sector has a deficit.
C) If private saving is greater than private investment, then the private sector has a surplus.
D) All of the above answers are correct.
Answer: D
Explanation: A)
B)
C)
D)

22) When Australia exports goods to foreign countries, we 22)

A) decrease our inflation rate.
B) receive payments from the rest of the world.
C) make payments to the rest of the world.
D) increase our inflation rate.
Answer: B
Explanation: A)
B)
C)
D)

6
23) In the figure above, the shift in the demand curve for Australian dollars from D0 to D1 could occur 23)
when
A) foreign interest rates drop.
B) the expected future exchange rate falls.
C) people expect that the dollar will depreciate.
D) the Australian interest rate drops.
Answer: A
Explanation: A)
B)
C)
D)

24) The law of demand in the foreign exchange market refers to the relationship between the 24)
A) Australian price level and the exchange rate.
B) interest rate and the quantity of Australian dollars demanded.
C) exchange rate and the quantity of Australian dollars demanded.
D) interest rate and the exchange rate.
Answer: C
Explanation: A)
B)
C)
D)

7
 25) Suppose the Australian government gives foreign aid to Indonesia. This transaction would directly 25)
A) increase the Australian current account.
B) decrease the Australian capital and financial account.
C) decrease the Australian current account.
D) increase the Australian capital and financial account.
Answer: C
Explanation: A)
B)
C)
D)

Quantity of dollars Quantity of dollars

Exchange rate demanded supplied
(yen per dollar) (billions) (billions)
180 200 230
160 220 220
140 240 210
120 260 200
100 280 190

26) The table above gives the supply and demand schedules of Australian dollars. Suppose that the 26)
Reserve Bank spends $30 billion and buys foreign securities. As a result, the Australian dollar will
________.
A) depreciate by 140 yen per dollar B) appreciate by 180 yen per dollar
C) appreciate by 20 yen per dollar D) depreciate by 20 yen per dollar
Answer: D
Explanation: A)
B)
C)
D)

27) A German publishing company buys an Australian publishing company based in Perth. In 27)
Australia's balance of payments accounts, this transaction directly appears in
A) the capital and financial account.
B) the official settlements account.
C) the imports part of the current account.
D) the net transfers part of the current account.
Answer: A
Explanation: A)
B)
C)
D)

28) If the expected future exchange rate rises, the currency's 28)
A) exchange rate falls. B) supply decreases.
C) quantity supplied increases. D) supply increases.
Answer: B
Explanation: A)
B)
C)
D)

8
29) The demand for Australian dollars in the foreign exchange market will decrease and the demand 29)
curve will shift leftward if
A) the exchange rate for the Australian dollar rises.
B) the Australian interest rate differential decreases.
C) the expected future exchange rate rises.
D) None of the above answers is correct.
Answer: B
Explanation: A)
B)
C)
D)

30) According to purchasing power parity, a rise in inflation in Australia relative to the rest of the 30)
world will lead to
A) an exchange rate appreciation. B) a balance of payments surplus.
C) an exchange rate depreciation. D) a balance of payments deficit.
Answer: C
Explanation: A)
B)
C)
D)

31) Adjusted for risk, interest rate parity 31)

A) holds only between Australian and New Zealand.
B) holds only when purchasing parity holds.
C) always holds.
D) holds only for larger countries.
Answer: C
Explanation: A)
B)
C)
D)

32) Which of the following exchange rate policies uses a target exchange rate, but allows the target to 32)
change?
A) Flexible exchange rate B) Crawling peg
C) Moving target D) Fixed exchange rate
Answer: B
Explanation: A)
B)
C)
D)

9
33) In the figure above, the shift in the supply curve for Australian dollars from S0 to S2 could occur 33)
when
A) the current exchange rate rises. B) the expected future exchange rate rises.
C) the expected future exchange rate falls. D) the current exchange rate falls.
Answer: C
Explanation: A)
B)
C)
D)

34) When the Australian exchange rate falls, Australian goods become ________ to foreign residents 34)
and Australian exports ________.
A) more expensive; increase B) less expensive; decrease
C) less expensive; increase D) more expensive; decrease
Answer: C
Explanation: A)
B)
C)
D)

35) To pay for a current account deficit, a country can 35)

A) lend money abroad.
B) transfer money from the capital account to the reserve assets account.
C) increase official reserves to cover the shortfall.
D) borrow money from abroad.
Answer: D
Explanation: A)
B)
C)
D)

10
36) A negative balance in the capital and financial account means the economy is 36)
A) running a capital account surplus. B) lending to the rest of the world.
C) importing more than it is exporting. D) borrowing from the rest of the world.
Answer: B
Explanation: A)
B)
C)
D)

37) Given the Australian price level P, the foreign country price level P*, and the nominal exchange 37)
rate E in foreign currency per Australian dollar, the real exchange rate RER is given by
A) RER = E × (P/P*) B) RER = (P/P*) / E
C) RER = E × (P*/P) D) RER = P × (E/P*)
Answer: A
Explanation: A)
B)
C)
D)

38) If there are equal rates of return between assets in two currencies, then there is 38)
A) interest rate parity. B) foreign exchange parity.
C) parity of exchange. D) purchasing power parity.
Answer: A
Explanation: A)
B)
C)
D)

39) If the pound-dollar exchange rate changes from £0.60 per dollar to £0.65 per dollar, then the pound 39)
has ________ against the dollar and the dollar has ________ against the pound.
A) depreciated; appreciated B) depreciated; depreciated
C) appreciated; depreciated D) appreciated; appreciated
Answer: A
Explanation: A)
B)
C)
D)

40) A factor determining the supply of Australian dollars in the foreign exchange market is 40)
A) the expected future exchange rate.
B) the expected future interest rate in foreign countries.
C) the expected future interest rate in Australia.
D) Australia's supply of exports.
Answer: A
Explanation: A)
B)
C)
D)

11
 41) If the prices in Australia rise faster than those in other countries, 41)
A) then interest rate parity must not hold. B) the exchange rate falls.
C) the interest rate in Australia falls. D) the exchange rate rises.
Answer: B
Explanation: A)
B)
C)
D)

42) Which of the following occurrences would NOT shift the demand curve for Australian dollars in 42)
the foreign exchange market?
A) An increase in Australian interest rates
B) An increase in the expected future Australian exchange rate
C) An increase in foreign interest rates
D) An increase in the Australian exchange rate
Answer: D
Explanation: A)
B)
C)
D)

Item Billions of Australian dollars

Exports of goods 1000
Imports of goods -665
Exports of services 410
Imports of services -590
Net interest income 0
Net transfers -15
Australia's investment abroad -600
Foreign investment in Australia 400
Reserve assets account 60

43) The data in the table above are the Australian balance of payments. The sum of the current account 43)
plus capital and financial account plus reserve assets account is equal to
A) -$60 billion. B) $0. C) -$335 billion. D) $140 billion.
Answer: B
Explanation: A)
B)
C)
D)

44) When the Australian exchange rate rises, foreign goods become ________ and Australian imports 44)
________.
A) less expensive; decrease B) less expensive; increase
C) more expensive; decrease D) more expensive; increase
Answer: B
Explanation: A)
B)
C)
D)

12
45) If Australia's current account balance is -$500 billion and the capital and financial account balance 45)
is +$510 billion,
A) foreign investment in Australia is smaller than Australian investment abroad.
B) the Australian government's holdings of foreign currency increase by $10 billion.
C) Australian exports are greater than Australian imports.
D) the Australian reserve assets account balance is $10 billion.
Answer: B
Explanation: A)
B)
C)
D)

46) Other things remaining the same, if the expected future exchange rate rises, the demand curve for 46)
Australian dollars shifts ________ and the supply curve of Australian dollars shifts ________.
A) rightward; rightward B) leftward; leftward
C) leftward; rightward D) rightward; leftward
Answer: D
Explanation: A)
B)
C)
D)

47) A country's balance of payments accounts record 47)

A) the international trading, borrowing and lending positions of a country over a period of time.
B) only official transactions between governments over a period of time.
C) only the goods and services purchases among countries over a period of time.
D) the flow of human and non-human capital among countries over a period of time.
Answer: A
Explanation: A)
B)
C)
D)

48) Suppose X - M = net exports; T - G = government sector balance; and S - I = private sector balance. 48)
What relationship exists among these variables?
A) (X - M) = (T - G) + (S - I) B) (T - G) + (X - M) = (S - I)
C) (X - M) + (T - G) + (S - I) = 0 D) (T - G) = (X - M) + (S - I)
Answer: A
Explanation: A)
B)
C)
D)

13
49) A change in which of the following changes the supply of dollars and shifts the supply curve of 49)
dollars?
I. An increase in the exchange rate
II. A change in interest rates
III. A decrease in the expected future exchange rate
A) I B) I and II C) II and III D) I, II and III
Answer: C
Explanation: A)
B)
C)
D)

50) Hyundai is a large South Korean company that produces finished steel products. Hyundai plans to 50)
buy raw steel from Australia. As a result, the
A) demand curve for Australian dollars shifts rightward.
B) demand curve for Australian dollars shifts leftward.
C) demand curve for South Korean won shifts leftward.
D) demand curve for South Korean won shifts rightward.
Answer: A
Explanation: A)
B)
C)
D)

51) If a country is importing more than it is exporting, the current account will have a ________ balance 51)
and the capital and financial account will have a ________ balance.
A) positive; positive B) negative; positive
C) positive; negative D) negative; negative
Answer: B
Explanation: A)
B)
C)
D)

52) A reserve assets account balance of -$5,000 means 52)

A) the country is exporting more than it is importing.
B) official reserves of foreign currency increased by $5,000.
C) the country is importing more than it is exporting.
D) official reserves of foreign currency decreased by $5,000.
Answer: B
Explanation: A)
B)
C)
D)

14
 53) If interest rates in Japan rise and those in Australia do not change, there is 53)
A) a downward movement along the supply curve for Australian dollars.
B) a decrease in the supply of Australian dollars.
C) an increase in the supply of Australian dollars.
D) None of the above answers is correct.
Answer: C
Explanation: A)
B)
C)
D)

Expected future value of Australian dollar

Investor (Yen per dollar)
Investor A 120
Investor B 100
Investor C 85

54) Using the table above, if the current market value of the Australian dollar is 70 yen per dollar, 54)
A) all three investors expect the dollar to appreciate.
B) investor A expects dollar appreciation, but B and C expect depreciation.
C) all three investors expect the dollar to depreciate.
D) investor A expects dollar depreciation, but B and C expect appreciation.
Answer: A
Explanation: A)
B)
C)
D)

55) The account that records the receipts from exports of goods and services sold abroad, the payments 55)
for imports of goods and services from abroad, net interest income paid abroad, and net transfers is
the ________.
A) international capital account B) current account
C) official settlements account D) capital and financial account
Answer: B
Explanation: A)
B)
C)
D)

56) ________ can intervene directly in the foreign exchange market by buying or selling Australian 56)
dollars.
A) The International Monetary Fund B) The Reserve Bank of Australia
C) The Australian Treasury department D) The Parliament
Answer: B
Explanation: A)
B)
C)
D)

15
57) Suppose the Reserve Bank wants to fix the Australian dollar/Philippine peso rate at 11 pesos per 57)
dollar under a fixed exchange rate policy. If the exchange rate falls to 10 pesos per Australian
dollar, the Reserve Bank can
A) attempt to freeze all sales of Australian dollars.
B) buy Australian dollars.
C) sell Australian dollars.
D) Any of the above actions could take place.
Answer: B
Explanation: A)
B)
C)
D)

58) Australians demand Japanese yen in order to 58)

A) allow the Japanese to buy Australian products.
B) sell Japanese products.
C) supply Australian goods in Japanese markets.
D) buy Japanese products.
Answer: D
Explanation: A)
B)
C)
D)

16
59) In the figure above, the shift in the demand curve for Australian dollars from D0 to D1 could occur 59)
when
A) the Australian interest rate rises.
B) the expected future exchange rate decreases.
C) foreign interest rates increase.
D) people expect that the dollar will depreciate.
Answer: A
Explanation: A)
B)
C)
D)

60) The private sector surplus or deficit equals 60)

A) investment minus saving. B) government purchases minus net taxes.
C) saving minus investment. D) net taxes minus government purchases.
Answer: C
Explanation: A)
B)
C)
D)

61) The current account balance is equal to 61)

A) net exports - net interest income - net transfers.
B) net interest income + net transfers - net exports.
C) net exports + net interest income + net transfers.
D) net exports + net interest income - net transfers.
Answer: C
Explanation: A)
B)
C)
D)

17
62) If the price level in Australia is 120, the price level in South Africa is 140, and the nominal exchange 62)
rate is 7 South African rand per Australian dollar, then the real exchange rate is
A) 9.8 South African goods per Australian good.
B) 6 South African goods per Australian good.
C) 8.4 South African goods per Australian good.
D) 1.4 South African goods per Australian good.
Answer: B
Explanation: A)
B)
C)
D)

63) In the foreign exchange market, the supply curve for dollars slopes upwards because 63)
A) supply curves always slope upwards.
B) as the exchange rate rises, imports become cheaper, and more dollars are supplied to pay for
the increase in the quantity of imports.
C) as the exchange rate rises, imports become more expensive, and more dollars are supplied to
pay for the imports.
D) as the exchange rate rises, more dollars are supplied since the profit from selling dollars falls.
Answer: B
Explanation: A)
B)
C)
D)

64) The Reserve Bank of Australia 64)

A) sells Australian dollars to China in an attempt to depreciate the Australian dollar.
B) has no influence on the exchange rate.
C) allows a flexible exchange rate, though their actions can impact on the exchange rate.
D) alternates between a flexible, fixed and crawling peg exchange rate policy depending on
economic conditions.
Answer: C
Explanation: A)
B)
C)
D)

65) If portable disc players made in China are imported into Australia, the Chinese manufacturer is 65)
paid with
A) international monetary credits. B) yuan, the Chinese currency.
C) Australian dollars. D) euros, or any other third currency.
Answer: B
Explanation: A)
B)
C)
D)

18
66) By fixing its exchange rate, China is most likely 66)
A) keeping its export prices low.
B) making it easier to compete in world markets.
C) achieving a low inflation rate by anchoring to the U.S. inflation rate.
D) Both answers B and C
Answer: C
Explanation: A)
B)
C)
D)

67) Suppose that the Australian interest rate is 5 per cent and the Japanese interest rate is 1 per cent. 67)
The effect of this difference in the foreign exchange market is that
A) investors expect the yen to appreciate against the dollar.
B) a Japanese investor is guaranteed to make an additional 4 per cent in yen terms by investing
in Australia.
C) investors expect the yen to depreciate against the dollar.
D) all funds flow to Australia to get the higher interest rate.
Answer: A
Explanation: A)
B)
C)
D)

68) If the Reserve Bank sets a target exchange rate that is higher than the current exchange rate, then 68)
A) the Reserve Bank must buy dollars.
B) the Reserve Bank must sell dollars.
C) the Reserve Bank will try to print more dollars for foreign distribution.
D) the Reserve Bank can do nothing in the short run.
Answer: A
Explanation: A)
B)
C)
D)

69) As the value of Australian exports ________, the quantity of ________ demanded increases. 69)
A) increases; Australian dollars
B) decreases; Australian dollars
C) increases; foreign currencies
D) None of the above is correct because the value of Australian exports has nothing to do with
the quantity of dollars or foreign currency.
Answer: A
Explanation: A)
B)
C)
D)

19
70) When there is a current account deficit and the reserve assets account equals 0, then 70)
A) the country has a budget surplus.
B) exports exceed imports for the country.
C) the country is an exporter of capital.
D) the capital and financial account has a surplus.
Answer: D
Explanation: A)
B)
C)
D)

71) The quantity of Australian dollars demanded by foreign nations increases as 71)
A) Australian residents purchase more foreign goods.
B) foreigners purchase more Australian goods.
C) Australian exports fall.
D) more Australian residents travel abroad.
Answer: B
Explanation: A)
B)
C)
D)

72) A country's balance of payments accounts include all of the following EXCEPT the 72)
A) reserve assets account. B) capital and financial account.
C) Australian government deficit or surplus. D) current account.
Answer: C
Explanation: A)
B)
C)
D)

73) The current account 73)

A) does not account for interest payments paid to and received from the rest of the world.
B) is part of GDP.
C) measures our imports minus our exports.
D) measures our exports minus our imports, taking into account interest payments paid to and
received from the rest of the world.
Answer: D
Explanation: A)
B)
C)
D)

20
Currency 2009 Exchange Rate 2010 Exchange Rate
EU euro 2 euros per Australian dollar 3 euros per Australian dollar
Japanese yen 120 yen per Australian dollar 90 yen per Australian dollar

74) Refer to the hypothetical data in the above Table. Between 2009 and 2010, the Australian dollar 74)
________ versus the euro and ________ versus the yen
A) appreciated; depreciated B) depreciated; appreciated
C) appreciated; appreciated D) depreciated; depreciated
Answer: A
Explanation: A)
B)
C)
D)

75) The current account records all transactions below EXCEPT for 75)
A) net interest income. B) net transfers.
C) net exports of goods and services. D) net foreign investment.
Answer: D
Explanation: A)
B)
C)
D)

76) In the foreign exchange market, a change in which of the following will result in a movement along 76)
the demand curve for Australian dollars?
A) The interest rate in the foreign country B) The Australian interest rate
C) The expected future exchange rate D) The exchange rate
Answer: D
Explanation: A)
B)
C)
D)

77) Other things remaining the same, the ________ the exchange rate for Australian dollars, the greater 77)
the ________ in the foreign exchange market.
A) lower; value of Australian imports
B) higher; quantity of Australian dollars demanded
C) higher; expected profits from holding Australian dollars
D) higher; quantity of Australian dollars supplied
Answer: D
Explanation: A)
B)
C)
D)

21
78) Other things remaining the same, the Australian interest rate differential increases if the Australian 78)
interest rate
A) falls and foreign interest rates rise.
B) remains constant and foreign interest rates rise.
C) rises and foreign interest rates remain constant.
D) falls and foreign interest rates remain constant.
Answer: C
Explanation: A)
B)
C)
D)

79) Which factor can change expectations about the exchange rate? 79)
A) Interest rate parity B) Purchasing power parity
C) Real GDP parity D) Both answers A and B are correct.
Answer: D
Explanation: A)
B)
C)
D)

80) The nominal exchange rate is 80)

A) a measure of the quantity of the nominal GDP of other countries that we get per unit of
Australia's nominal GDP.
B) the real exchange rate multiplied by the ratio of the Australian price level to the foreign price
level.
C) the relative price of Australian-produced goods to foreign-produced goods.
D) the value of the Australian dollar expressed in units of foreign currency per Australian dollar.
Answer: D
Explanation: A)
B)
C)
D)

81) Australians demand Japanese yen in order to 81)

A) buy Japanese products.
B) balance the current account.
C) supply Australian goods in Japanese markets.
D) allow the Japanese to buy Australian products.
Answer: A
Explanation: A)
B)
C)
D)

22
82) Which of the following is correct? 82)
A) Net exports equals the current account plus the capital account plus the official settlements
account.
B) The private sector balance equals net exports plus the government sector balance.
C) The government sector balance equals net exports plus the private sector balance.
D) Net exports equals the government sector balance plus the private sector balance.
Answer: D
Explanation: A)
B)
C)
D)

83) In the foreign exchange market, which of the following results in a movement along the supply 83)
curve of dollars?
A) A change in the expected future exchange rate.
B) A change in the current exchange rate.
C) A change in the Australian interest rate.
D) None of the above answers is correct.
Answer: B
Explanation: A)
B)
C)
D)

84) If net interest and net transfers are zero, and a country's exports exceed its imports, the country 84)
definitely has ________.
A) a reserve assets account surplus B) a capital and financial account surplus
C) a current account deficit D) a current account surplus
Answer: D
Explanation: A)
B)
C)
D)

85) When Australia imports goods and services from the rest of the world, 85)
A) we decrease our inflation rate.
B) we receive payments from the rest of the world.
C) we increase our inflation rate.
D) we make payments to the rest of the world.
Answer: D
Explanation: A)
B)
C)
D)

23
 86) Epsilon is a country whose unit of currency is the omega. New information leads people to expect 86)
that the omega will appreciate next year. To keep the foreign exchange value of the omega fairly
steady, the Bank of Epsilon will ________ enough omegas on the foreign exchange market so that
the ________ omegas will ________.
A) buy; demand for; increase B) buy; demand for; decrease
C) buy; supply of; decrease D) sell; supply of; increase
Answer: D
Explanation: A)
B)
C)
D)

87) A net exports deficit or surplus equals 87)

A) net worth plus the government sector balance minus the private sector balance.
B) the government sector balance plus the private sector balance.
C) net lending by both the private and public sector plus savings minus investment.
D) taxes minus savings plus public and private investment.
Answer: B
Explanation: A)
B)
C)
D)

88) If Australia sells beef to Japan, the Australian beef producer is paid with 88)
A) international monetary credits. B) yen, the Japanese currency.
C) Australian dollars. D) euros, or any other third currency.
Answer: C
Explanation: A)
B)
C)
D)

Item Billions of Australian dollars

Exports of goods 1000
Imports of goods -665
Exports of services 410
Imports of services -590
Net interest income 0
Net transfers -15
Australia's investment abroad -600
Foreign investment in Australia 400
Reserve assets account 60

89) The data in the table above are the Australian balance of payments. The current account balance is 89)
A) $170 billion. B) -$45 billion. C) $155 billion. D) $140 billion.
Answer: D
Explanation: A)
B)
C)
D)

24
90) In the above figure, suppose the demand for dollars permanently decreases to D2 . To maintain the 90)
target, the Reserve Bank
A) must decrease the nation's net exports.
B) can buy dollars.
C) can sell dollars.
D) The Reserve Bank cannot permanently maintain the exchange rate target of 150 yen per
dollar.
Answer: D
Explanation: A)
B)
C)
D)

91) Which of the following accounts records the change in Australian official reserves? 91)
A) The current account B) The reserve assets account
C) The capital and financial account D) None of the above
Answer: B
Explanation: A)
B)
C)
D)

92) With everything else the same, in the foreign exchange market the 92)
A) the higher the exchange rate, the cheaper are Australian goods and services.
B) lower the exchange rate, the smaller the amount of Australian exports.
C) the lower the exchange rate, the smaller is the expected profit from buying dollars.
D) larger the value of Australian exports, the greater is the quantity of dollars demanded.
Answer: D
Explanation: A)
B)
C)
D)

25
93) Which of the following is included in a nation's capital and financial account? 93)
I. The purchase of foreign stocks and bonds
II. The sale of foreign stocks and bonds
III. Importing a piece of capital equipment
A) I only B) I and II C) III only D) I, II and III
Answer: B
Explanation: A)
B)
C)
D)

94) In the foreign exchange market, the higher the dollar's exchange rate, the 94)
A) smaller the supply of dollars. B) larger the supply of dollars.
C) larger the quantity supplied of dollars. D) smaller the quantity supplied of dollars.
Answer: C
Explanation: A)
B)
C)
D)

95) Which of the following is included in Australia's current account balance? 95)
I. Exports to Japan
II. Interest payments made to Canada
III. Transfer payments made to East Timor
A) I only B) I and II C) I and III D) I, II and III
Answer: D
Explanation: A)
B)
C)
D)

96) Today, Australia is a 96)

I. net borrower.
II. net lender.
III. debtor nation.
IV. creditor nation.
A) I and III B) II and III C) I and IV D) II and IV
Answer: A
Explanation: A)
B)
C)
D)

26
 Amount
Component (billions of dollars)
Investment, I 700
Net taxes, T 1,300
Government expenditure, G 1,200
Exports, X 1,500
Imports, M 1,700

97) In the above table, the government sector balance is a 97)

A) deficit of $100 billion. B) surplus of $100 billion.
C) deficit of $200 billion. D) surplus of $200 billion.
Answer: B
Explanation: A)
B)
C)
D)

98) The reserve assets account records the change in ________. 98)
A) Australian official reserves
B) the reserves held by banks and the Reserve Bank
C) foreign investment and domestic investment
D) international trade
Answer: A
Explanation: A)
B)
C)
D)

99) The lower the exchange rate today, ceteris paribus, the 99)
A) smaller the quantity of Australian dollars demanded in the foreign exchange market today.
B) smaller is the expected profit from buying Australian dollars today and holding them.
C) greater is the expected profit from buying foreign currency today and holding it.
D) greater is the expected profit from buying Australian dollars today and holding them.
Answer: D
Explanation: A)
B)
C)
D)

100) If the current account balance is $30 billion, and the capital and financial account balance is $35 100)
billion, then the reserve assets account balance is ________ billion, and the official reserves
________.
A) $5 billion; increase B) -$5 billion; decrease
C) $5 billion; decrease D) -$5 billion; increase
Answer: D
Explanation: A)
B)
C)
D)

27
101) In the figure above, suppose the economy is initially at point B. Then the interest rate in Japan rises 101)
relative to the interest rate in Australia. This change ________ the supply of dollars and the market
moves to a point such as ________.
A) increases; D B) decreases; E C) decreases; A D) increases; C
Answer: D
Explanation: A)
B)
C)
D)

102) The law of demand for dollars in the foreign exchange market means that the 102)
A) lower the exchange rate, the greater the quantity of dollars demanded.
B) higher the exchange rate, the smaller the quantity of dollars demanded.
C) lower the exchange rate, the smaller the quantity of Australian exports demanded.
D) Both answers A and B are correct.
Answer: D
Explanation: A)
B)
C)
D)

103) The ________ the exchange rate, the ________ are foreign-produced goods and hence the smaller 103)
the quantity of dollars supplied.
A) lower; more expensive B) greater; more expensive
C) lower; cheaper D) greater; cheaper
Answer: A
Explanation: A)
B)
C)
D)

28
104) When a nation's currency depreciates, the country might 104)
A) have an inflation rate that exceeds the inflation rate in nations with which it trades.
B) be responding to a decrease in the domestic demand for foreign currencies.
C) have an inflation rate below the inflation rate in nations with which it trades.
D) be responding to an increase in the demand for its currency.
Answer: A
Explanation: A)
B)
C)
D)

105) In part, a country's current account measures 105)

A) its current debt as opposed to its long-term debt.
B) net increases and decreases in a country's holdings of foreign currency.
C) receipts from the sale of goods and services to foreigners and payments for goods and
services bought from foreigners.
D) borrowing and lending activity between the country's residents and foreigners.
Answer: C
Explanation: A)
B)
C)
D)

106) The ________ the expected profit from holding a foreign currency, the greater is the ________ in the 106)
foreign exchange market.
A) larger; quantity supplied of Australian dollars
B) larger; quantity demanded of Australian dollars
C) smaller; quantity demanded of foreign currency
D) None of the above is correct because the expected profit has nothing to do with the supply
and demand for Australian dollars or foreign currency.
Answer: A
Explanation: A)
B)
C)
D)

107) A country's balance of payments accounts record 107)

A) the country's net indebtedness to foreigners.
B) its international trading, borrowing and lending.
C) only its official transactions with other governments.
D) the flow of human and non-human resources between it and its trading partners.
Answer: B
Explanation: A)
B)
C)
D)

29
 108) If the price level rises in Australia but not in foreign nations and the current exchange rate does not 108)
change, the expected future exchange rate
A) stays the same. B) rises.
C) falls. D) You can't tell from the given information.
Answer: C
Explanation: A)
B)
C)
D)

109) Suppose the Australian interest rate is 6 per cent and the world interest rate is 5 per cent. The 109)
Australian interest differential is
A) 1 per cent. B) -1 per cent. C) 1.2 per cent. D) -0.83 per cent.
Answer: A
Explanation: A)
B)
C)
D)

Amount
Component (billions of dollars)
Investment, I 700
Net taxes, T 1,300
Government expenditure, G 1,200
Exports, X 1,500
Imports, M 1,700

110) In the above table, the private sector has a 110)

A) surplus of $300 billion. B) deficit of $200 billion.
C) deficit of $400 billion. D) deficit of $300 billion.
Answer: D
Explanation: A)
B)
C)
D)

111) If the nominal exchange rate rises and price levels stay constant, the real exchange rate will 111)
A) rise. B) stay constant.
C) fall. D) rise, fall or stay constant.
Answer: A
Explanation: A)
B)
C)
D)

30
112) If the Australian government increased its holdings of British pounds, definitely 112)
A) there would be an increase in Australian official reserves.
B) there would be a decrease in Australian official reserves.
C) the capital and financial account would decrease.
D) the capital and financial account would increase.
Answer: A
Explanation: A)
B)
C)
D)

113) If a country during its entire history has invested more in the rest of the world than the rest of the 113)
world has invested in it, the country is a
A) net lender. B) net borrower. C) debtor nation. D) creditor nation.
Answer: D
Explanation: A)
B)
C)
D)

114) The exchange rate is the price at which the ________ of one country exchanges for the ________ of 114)
another country.
A) currency; goods B) goods; goods
C) currency; financial instruments D) currency; currency
Answer: D
Explanation: A)
B)
C)
D)

115) The largest part of Australia's current account consists of 115)

A) net transfer payments between Australia and Indonesia.
B) Reserve Bank transfers of Australian dollars to other central banks.
C) receipts from exports and payments for imports.
D) net borrowing between Australia and other countries.
Answer: C
Explanation: A)
B)
C)
D)

116) The idea that the value of money is equal across countries is known as 116)
A) exchange rate parity. B) purchasing power parity.
C) interest rate parity. D) the expected profit parity effect.
Answer: B
Explanation: A)
B)
C)
D)

31
117) On the island country of Sunshine where the unit of currency is fish, net exports are 50 fish, saving 117)
is 250 fish, net taxes are 100 fish, and the government budget deficit is 175 fish. What is the value of
investment?
A) -375 fish B) 375 fish C) 25 fish D) -25 fish
Answer: C
Explanation: A)
B)
C)
D)

118) In Australia, since 1981 which two of the following have almost always moved in the same 118)
direction?
A) The government sector balance and the private sector balance
B) Net exports and the government sector balance
C) Net exports and the private sector balance
D) None of the above
Answer: D
Explanation: A)
B)
C)
D)

119) When people who are holding the money of some other country want to exchange it for Australian 119)
dollars, they ________ Australian dollars and ________ that other country's money.
A) supply; supply B) supply; demand
C) demand; supply D) demand; demand
Answer: C
Explanation: A)
B)
C)
D)

120) With everything else the same, which of the following would increase the demand for Australian 120)
dollars in the foreign exchange market?
I. A rise in Australian interest rate
II. A fall in interest rates in foreign countries
III. A rise in the expected future exchange rate
A) I only B) I and II only C) I and III only D) I, II and III
Answer: D
Explanation: A)
B)
C)
D)

32
121) In the figure above, suppose the demand for dollars temporarily decreases so that the demand curve 121)
shifts to D2 . To maintain the target exchange rate, the Reserve Bank
A) can buy dollars.
B) must violate both interest rate parity and purchasing power parity.
C) can sell dollars.
D) The Reserve Bank cannot maintain the target exchange rate.
Answer: A
Explanation: A)
B)
C)
D)

122) If the Reserve Bank wants to depreciate the dollar against the yen, the Reserve Bank will 122)
A) decrease the supply of dollars by selling yen.
B) increase the supply of dollars by selling yen.
C) increase the supply of dollars by buying yen.
D) increase the demand for dollars by selling yen.
Answer: C
Explanation: A)
B)
C)
D)

123) In 2010/11, Australia's current account had a 123)

A) surplus of $36 billion. B) deficit of $33 billion.
C) surplus of $33 billion. D) deficit of $36 billion.
Answer: B
Explanation: A)
B)
C)
D)

33
124) Which of the following transactions is NOT recorded in the capital and financial account? 124)
A) Statistical discrepancy B) Net interest income
C) Australian investment abroad D) Foreign investment in Australia
Answer: B
Explanation: A)
B)
C)
D)

125) If the Reserve Bank wants to depreciate the Australian dollar against the British pound, it will 125)
________.
A) decrease the money supply B) sell British pounds
C) sell foreign exchange D) sell Australian dollars
Answer: D
Explanation: A)
B)
C)
D)

126) With everything else the same, in the foreign exchange market which of the following increases the 126)
supply of Australian dollars?
I. A fall in the Australian interest rate
II. A fall in interest rates in foreign countries
III. A rise in the expected future exchange rate
A) I only B) I and II only C) I and III only D) I, II and III
Answer: A
Explanation: A)
B)
C)
D)

127) The sum of the current account, capital and financial account, and reserve assets account is 127)
A) positive or negative depending on whether the domestic exchange rate is appreciating or
depreciating.
B) a negative number if the country has a trade deficit.
C) always equal to zero.
D) a positive number if the country has a trade surplus.
Answer: C
Explanation: A)
B)
C)
D)

34
128) The foreign exchange market is 128)
A) made up of importers, exporters, banks, international travellers and specialist traders.
B) the place where people buy and sell foreign goods and services.
C) the market in which approximately $600 trillion in foreign exchange is traded each year.
D) Both A and C are correct
Answer: D
Explanation: A)
B)
C)
D)

129) The real exchange rate is the 129)

A) nominal exchange rate multiplied by the trade-weighted index.
B) trade-weighted index adjusted for inflation.
C) relative price of Australian-produced output to foreign-produced output.
D) price of foreign goods relative to the price of domestic goods.
Answer: C
Explanation: A)
B)
C)
D)

130) Consider the market for euros. Suppose the exchange rate is ________ its equilibrium. This means 130)
that the quantity of euros ________ is greater than the quantity of euros ________ and the exchange
rate will ________.
A) below; demanded; supplied; fall B) above; demanded; supplied; fall
C) above; supplied; demanded; fall D) below; supplied; demanded; rise
Answer: C
Explanation: A)
B)
C)
D)

131) Suppose the target exchange rate set by the Reserve Bank is 150 yen per dollar. If the demand for 131)
dollars permanently decreases, the Reserve Bank
A) cannot permanently maintain the target rate.
B) must violate both interest rate parity and purchasing power parity to permanently meet the
target.
C) can permanently meet the target by selling dollars.
D) can permanently meet the target by buying dollars.
Answer: A
Explanation: A)
B)
C)
D)

35
132) Net exports equals 132)
A) exports of goods and services minus imports of goods and services.
B) imports of goods and services minus exports of goods and services.
C) the government sector balance plus the private sector balance.
D) Both answers A and C are correct.
Answer: D
Explanation: A)
B)
C)
D)

133) Foreign nations' demand for Australian dollars increases as 133)

A) foreigners purchase more Australian goods.
B) Australians purchase more foreign goods.
C) Australians' exports fall.
D) Australians travel abroad more.
Answer: A
Explanation: A)
B)
C)
D)

134) Which of the following transactions directly leads to a surplus on Australia's capital and financial 134)
account?
A) A resident of France visits Australia.
B) An Australian sells wheat to an African nation.
C) An Australian purchases a share of stock on the Tokyo exchange.
D) A Japanese resident purchases an Australian government bond.
Answer: D
Explanation: A)
B)
C)
D)

135) All of the following statements are correct EXCEPT 135)

A) China's exchange rate policy does not impact the real exchange rate in the long run.
B) China's exchange rate policy results in a depreciated yuan.
C) China's exchange rate policy is mainly an attempt to control inflation.
D) China's exchange rate policy boosts exports in the long run.
Answer: D
Explanation: A)
B)
C)
D)

36
136) The country of Pimm exports $500 billion worth of goods and services and imports $400 billion 136)
worth of goods and services. Net interest income paid abroad is $50 billion and net transfers are $0.
The current account balance is ________.
A) $25 billion B) $175 billion C) $50 billion D) $975 billion
Answer: C
Explanation: A)
B)
C)
D)

137) In the figure above, the shift in the supply curve for Australian dollars from S0 to S1 could occur 137)
when
A) the Australian interest rate differential decreases.
B) the expected future exchange rate falls.
C) the Australian interest rate differential increases.
D) the current exchange rate falls.
Answer: C
Explanation: A)
B)
C)
D)

138) When the value of one currency falls relative to another currency, the exchange rate for the first 138)
currency has
A) revalued. B) appreciated. C) demanded. D) depreciated.
Answer: D
Explanation: A)
B)
C)
D)

37
139) In the above figure, suppose the demand for dollars temporarily increases so that the demand curve 139)
shifts to D1 . To maintain the target exchange rate, the Reserve Bank
A) must violate interest rate parity but not purchasing power parity.
B) can sell dollars.
C) can buy dollars.
D) The Reserve Bank cannot maintain the target exchange rate.
Answer: B
Explanation: A)
B)
C)
D)

140) If the exchange rate is above equilibrium, there will be ________ in the foreign exchange market. 140)
A) a surplus B) a decrease in demand
C) an increase in demand D) a shortage
Answer: A
Explanation: A)
B)
C)
D)

141) If the Australian interest rate differential increases, in the foreign exchange market the demand for 141)
Australian dollars ________ and the supply of Australian dollars ________.
A) decreases; increases B) decreases; decreases
C) increases; decreases D) increases; increases
Answer: C
Explanation: A)
B)
C)
D)

38
 142) Foreign currency is 142)
A) the market for foreign exchange. B) foreign notes, coins and bank deposits.
C) foreign notes and coins only. D) the purchasing power of foreign money.
Answer: B
Explanation: A)
B)
C)
D)

143) An increase in the interest rate in Australia compared to the interest rate in Great Britain will 143)
A) increase the Australian interest rate differential.
B) increase the demand for pounds.
C) shift the demand curve for Australian dollars rightward.
D) Both answers A and C are correct.
Answer: D
Explanation: A)
B)
C)
D)

Item Billions of Australian dollars

Exports of goods 1000
Imports of goods -665
Exports of services 410
Imports of services -590
Net interest income 0
Net transfers -15
Australia's investment abroad -600
Foreign investment in Australia 400
Reserve assets account 60

144) The data in the table above are the Australian balance of payments. The capital and financial 144)
account balance is
A) -$200 billion. B) $0. C) -$80 billion. D) +$200 billion.
Answer: A
Explanation: A)
B)
C)
D)

145) The exchange rate is the 145)

A) price of one country's currency expressed in terms of another country's currency.
B) ratio between imports and exports.
C) opportunity cost of pursuing a nation's comparative advantage.
D) interest rate that is charged on risk-free international capital flow.
Answer: A
Explanation: A)
B)
C)
D)

39
146) Which of the following contributes to a current account surplus for a country? 146)
A) Importing financial services
B) Having foreigners buy government securities from the country's government
C) Having tourists visit the country
D) Importing textiles
Answer: C
Explanation: A)
B)
C)
D)

147) Last year the exchange rate between Australian dollars and Philippine pesos was 30 pesos per 147)
dollar. Today it is 40 pesos per Australian dollar. Here, the Australian dollar ________ against the
peso, and the peso ________ against the dollar
A) depreciated; appreciated B) depreciated; depreciated
C) appreciated; appreciated D) appreciated; depreciated
Answer: D
Explanation: A)
B)
C)
D)

148) A factor helping determine demand for the Australian dollar in the foreign exchange market is 148)
A) the amount of Australian imports. B) the supply of Australian dollars.
C) the expected future interest rate. D) the expected future exchange rate.
Answer: D
Explanation: A)
B)
C)
D)

149) As the exchange rate ________, the ________ is the value of Australian ________. 149)
A) rises; smaller; imports B) falls; greater; exports
C) rises; greater; exports D) falls; greater; imports
Answer: B
Explanation: A)
B)
C)
D)

40
150) Other things remaining the same, the 150)
A) lower the exchange rate, the cheaper are foreign-produced goods and services.
B) larger the value of Australian imports, the greater is the quantity of Australian dollars
supplied to the foreign exchange market.
C) larger the value of Australian imports, the smaller is the quantity of foreign currency
demanded.
D) higher the exchange rate, the lower is the quantity of Australian dollars supplied to the
foreign exchange market.
Answer: B
Explanation: A)
B)
C)
D)

151) The Australian interest rate minus the foreign interest rate is called the ________. 151)
A) foreign interest rate differential B) Australian stock yield differential
C) Australian interest rate differential D) Australian bond rate differential
Answer: C
Explanation: A)
B)
C)
D)

152) The demand for Chinese tyres by an Australian car manufacturer creates a 152)
A) supply of Australian dollars. B) demand for Australian dollars.
C) supply of Chinese yuan. D) demand for an interest rate differential.
Answer: A
Explanation: A)
B)
C)
D)

153) If growth in Australia speeds up so that investors believe they can make a bigger profit from 153)
Australian assets, the ________ Australian dollars will ________.
A) demand for; increase B) supply of; increase
C) supply of; decrease D) demand for; decrease
Answer: A
Explanation: A)
B)
C)
D)

41
154) A country has a government sector deficit and a private sector surplus. If the government sector 154)
deficit increases, and the private sector surplus decreases, ________.
A) net exports increase, decrease or remain constant
B) net exports decrease or remain constant
C) net exports increase
D) net exports decrease
Answer: D
Explanation: A)
B)
C)
D)

155) The Reserve Bank can influence the exchange rate by 155)
A) buying or selling Australian dollars. B) changing interest rates.
C) Both answers A and B are correct. D) None of the above answers is correct
Answer: C
Explanation: A)
B)
C)
D)

156) The export of Australian goods creates a ________ Australian dollars and creates a ________ 156)
foreign currencies.
A) supply of; supply of B) demand for; demand for.
C) demand for; supply of D) supply of; demand for
Answer: C
Explanation: A)
B)
C)
D)

157) Which of the following is included in a nation's current account? 157)

I. The import of services
II. A change of foreign currency holdings
III. Net transfers, such as foreign aid payments
A) II and III B) I and II C) I and III D) III only
Answer: C
Explanation: A)
B)
C)
D)

42
 Expected future value of Australian dollar
Investor (Yen per dollar)
Investor A 120
Investor B 100
Investor C 85

158) Using the table above, if the current market value of the Australian dollar is 125 yen per dollar, 158)
A) investor A expects dollar depreciation, but B and C expect appreciation.
B) all three investors expect the Australian dollar to depreciate.
C) all three investors expect the Australian dollar to appreciate.
D) investor A expects dollar appreciation, but B and C expect depreciation.
Answer: B
Explanation: A)
B)
C)
D)

159) When Australian dollar depreciates against the yen, the yen ________ and the exchange rate 159)
________.
A) appreciates; falls B) appreciates; rises
C) depreciates; falls D) depreciates; rises
Answer: A
Explanation: A)
B)
C)
D)

160) If X - M = $0 and the government sector has a deficit of $250 billion, the private sector 160)
A) has a deficit that equals $0. B) has a deficit that equals $250 billion.
C) has a surplus that equals $500 billion. D) has a surplus that equals $250 billion.
Answer: D
Explanation: A)
B)
C)
D)

161) As the exchange rate ________, the quantity of dollars ________ on the foreign exchange market 161)
________.
A) falls; demanded; decreases B) falls; supplied; increases
C) rises; demanded; increases D) rises; supplied; increases
Answer: D
Explanation: A)
B)
C)
D)

43
162) If a nation's central bank increased domestic interest rates, the nation's exchange rate would change 162)
if the country's exchange rate was
A) a crawling peg. B) a flexible exchange rate.
C) a nominally fixed exchange rate. D) a fixed exchange rate.
Answer: B
Explanation: A)
B)
C)
D)

163) If the exchange rate falls, then the expected profit from holding the currency 163)
A) decreases. B) does not change.
C) increases. D) can either increase or decrease.
Answer: C
Explanation: A)
B)
C)
D)

164) If nothing else changes, the ________ the current exchange rate, the ________ is the expected profit 164)
from holding Australian dollars.
A) lower; smaller
B) lower; larger
C) higher; larger
D) The premise of the question is wrong because the exchange rate has nothing to do with
expected profit from holding dollars.
Answer: B
Explanation: A)
B)
C)
D)

165) A debtor nation means a nation 165)

A) whose current lending to the rest of the world exceeds its borrowing from the rest of the
world.
B) whose imports exceeds its exports.
C) whose current account is less than its capital account.
D) who through its history has invested less in the rest of the world than other countries have
invested in it
Answer: D
Explanation: A)
B)
C)
D)

44
 Amount
Component (billions of dollars)
Investment, I 700
Net taxes, T 1,300
Government expenditure, G 1,200
Exports, X 1,500
Imports, M 1,700

166) In the above table, net exports equals a 166)

A) deficit of $200 billion. B) surplus of $200 billion.
C) deficit of $100 billion. D) surplus of $100 billion.
Answer: A
Explanation: A)
B)
C)
D)

167) In the figure above, the shift in the demand curve for Australian dollars from D0 to D2 could occur 167)
when
A) the expected future exchange rate increases.
B) people expect that the dollar will depreciate.
C) the Australian interest rate rises.
D) foreign interest rates fall.
Answer: B
Explanation: A)
B)
C)
D)

45
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Title: The bedbug

Its relation to public health, its habits and life history, and
methods of control

Creator: United States. Public Health Service

Release date: November 27, 2023 [eBook #72238]

Language: English

Original publication: Washington: Government Printing Office, 1924

Credits: Charlene Taylor, Donald Cummings, and the Online

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*** START OF THE PROJECT GUTENBERG EBOOK THE

BEDBUG ***
Transcriber’s Note: New original cover art included with this eBook is
granted to the public domain.
 TREASURY DEPARTMENT
UNITED STATES PUBLIC HEALTH SERVICE
HUGH S. CUMMING, Surgeon General

THE BEDBUG
ITS RELATION TO PUBLIC HEALTH, ITS HABITS
AND LIFE HISTORY, AND METHODS OF
CONTROL

REPRINT No. 626

FROM THE

PUBLIC HEALTH REPORTS

December 10, 1920
(Pages 2964–2970)
[Revised edition, 1924]

WASHINGTON
GOVERNMENT PRINTING OFFICE
1924
 THE BEDBUG.[1]
Its Relation to Public Health, its Habits and Life History, and Methods
of Control.
[1] Reprint from the Public Health Reports, vol. 35, No. 50,
December 10, 1920, pp. 2964–2970.

The bedbug is one of the numerous insects which have been

suspected of conveying disease to man. Compared with such insect
pests as mosquitoes, lice, and fleas, however, its rôle is decidedly a
minor one. It has been claimed that the bedbug can take up the
microparasites of European relapsing fever, plague, and possibly
leprosy, along with the blood of men or animals suffering from these
diseases. It is also possible that in rare instances the bedbug may
transmit plague or European relapsing fever to man. On the other
hand, there is no convincing evidence that the bedbug is the usual
and ordinary insect transmitter of these or any other diseases at
present known to us.
If the bedbug acts as a transmitter of disease, it apparently does
so by the accidental carriage of disease elements on the mouth
parts; but this occurs only under the most favorable conditions.
These would require, first, the presence of great numbers of
microparasites on the skin or in the blood of a man or animal sick
with some disease transmissible to man by subcutaneous
inoculation; second, it would probably be necessary that there
should be many bugs biting in order that one or more of them should
bite some healthy person within a rather short space of time after
these insects had fed on the infected individual.
In actual practice these conditions would be found only in the most
filthy and insanitary surroundings and would call for drastic
measures to exterminate all vermin. It is, of course, possible that
under unsettled conditions where sick and well are crowded together
with no facilities for cleanliness, bedbugs might act as transmitters of
septicemic diseases. Experience has shown that under such grossly
insanitary conditions such insects as fleas and lice appear to be and
are far more dangerous as carriers of disease. Special measures for
their extermination should be taken. Added precautions for the
examination of bedbugs under these conditions would probably not
be justified by the results.
Notwithstanding the minor rôle which must be assigned the
bedbug as a carrier of disease, its presence is an offense against
sanitary decency. Its bites are quite poisonous to some people and
its odor is most disagreeable; and every effort should be made to
keep all dwellings, hospitals, ships, and other premises free from
these disgusting insects.
Dr. L. O. Howard, Chief of the Bureau of Entomology, United
States Department of Agriculture, and consultant United States
Public Health Service, has permitted the quotation of the following
passages from Farmer’s Bulletin No. 754, by C. L. Marlatt, which
gives an authoritative account of the habits, life history, and the
means of control of these insects.

“General Characteristics.
“The bedbug belongs to the order Hemiptera, which includes the
true bugs or piercing insects, characterized by possessing a piercing
and sucking beak. The bedbug is to man what the chinch bug is to
grains or the squash bug to cucurbs. Like nearly all the insects
parasitic on animals, however, it is degraded structurally, its parasitic
nature and the slight necessity for extensive locomotion having
resulted, after many ages doubtless, in the loss of wings and the
assumption of a comparatively simple structure. Before feeding, the
adult is much flattened, oval, and in color is rust red, with the
abdomen more or less tinged with black. When engorged, the body
becomes much bloated and elongated and brightly colored from the
ingested blood. The wings are represented by the merest rudiments,
barely recognizable pads, and the simple eyes or ocelli of most other
true bugs are lacking. The absence of wings is a most fortunate
circumstance, since otherwise there would be no safety from it even
for the most careful of housekeepers. Some slight variation in length
of wing pads has been observed, but none with wings showing any
considerable development has ever been found.

“Habits and Life History.

“The bedbug is normally nocturnal in habits and displays a certain
degree of wariness, caution, and intelligence in its efforts at
concealment during the day. Under the stress of hunger, however, it
will emerge from its place of concealment in a well-lighted room at
night, so that under such circumstances keeping the gas or electric
light burning is not a complete protection. It has been known under
similar conditions to attack human beings voraciously in broad
daylight. It usually leaves its victim as soon as it has become
engorged with blood and retires to its normal place of concealment,
either in cracks in the bedstead, especially if the latter be one of the
wooden variety, or behind wainscoting, or under loose wall paper;
and in these and similar places it manifests its gregarious habit by
collecting in masses. It thrives particularly in filthy apartments and in
old houses which are full of cracks and crevices, in which it can
conceal itself beyond easy reach. As just noted, the old-fashioned,
heavy, wooden-slatted bedsteads afford especially favorable
situations for the concealment and multiplication of this insect, and
the general use in later years of iron and brass bedsteads has very
greatly facilitated its eradication. Such beds, however, do not insure
safety, as the insects are able to find places of concealment even
about such beds, or get to them readily from their other hiding
places.
“The bedbug takes from 5 to 10 minutes to become bloated with
blood, and then retires to its place of concealment for 6 to 10 days
for the quiet digestion of its enormous meal, and for subsequent
molting, or reproduction if in the adult stage.”
“The eggs hatch in a week or 10 days in the hot weather of
midsummer, but cold may lengthen or even double this incubation
period or check development altogether. The young escape by
pushing up the lid-like top with its projecting rim. When first emerged,
they are yellowish white and nearly transparent, the brown color of
the more mature insect increasing with the later molts.”
“Unfavorable conditions of temperature and food will necessarily
result in great variation in the number of generations annually and in
the rate of multiplication, but allowing for reasonable checks on
development, there may be at least four successive broods in a year
in houses kept well heated in winter.”

“Food and Longevity.

“Under normal conditions the food of the common bedbug is
obtained from human beings only, and no other unforced feeding
habit has been reported. It is easily possible, however, to force the
bedbug to feed on mice, rats, birds, etc., and probably it may do so
occasionally in nature in the absence of its normal host. The
abundance of this insect in houses which have long been
untenanted may occasionally be accounted for by such other
sources of food, but probably normally such infestation can be
explained by the natural longevity of the insect and its ability to
survive for practically a year, and perhaps more, without food.”

“Influence of Temperature.
“As a messmate of human beings in dwelling houses, the bedbug
is normally protected from extreme cold and is known to be an
abundant and serious pest far north. In fact, it is often more
troublesome in north temperate latitudes than farther south. This
may be accounted for partly by the fact that the bedbug is very
sensitive to high temperatures, and a temperature of 96° to 100° F.
or more, accompanied with a fairly high degree of humidity, results in
the death of large numbers of the bugs. The mature or partly mature
bedbugs can stand comparatively low temperatures, even below
freezing, for a considerable period. The eggs and newly hatched
larvæ, however, succumb to a temperature below freezing, if this
condition is prolonged for from 15 days to a month. The feeding and
developing activity of the insect practically ceases at 60° F., the
insect remaining quiescent and in semihibernation at temperatures
below this point. The most favorable temperatures for activity are
between 60° and 98° F. The activity of the insect is controlled entirely
by temperature and food supply, and, therefore, in heated houses
the insect may remain active throughout the winter. There is some
protection in winter, therefore, in sleeping in cold bedrooms.”

“The Bite of the Bedbug.

“The bite of the bedbug is decidedly poisonous to some
individuals, resulting in a slight swelling and disagreeable
inflammation. To such persons the presence of bedbugs is sufficient
to cause the greatest uneasiness, if not to put sleep and rest entirely
out of the question. With others, however, who are less sensitive, the
presence of the bugs may not be recognized at all, and, except for
the occasional staining of the linen by a crushed individual, their
presence might be entirely overlooked. The inflammation
experienced by sensitive persons seems to result chiefly from the
puncture of the skin by the sharp piercing setæ which constitute the
puncturing element of the mouth parts, as there seems to be no
secretion of poison other than the natural fluids of the mouth.
“The biting organ of the bedbug is similar to that of other insects of
its order. It consists of a rather heavy, fleshy under lip (the only part
ordinarily seen in examining the insect), within which lie four thread-
like hard filaments or setæ which glide over one another with an
alternating motion and pierce the flesh. The blood is drawn up
through the beak, which is closely applied to the point of puncture,
and the alternating motion of the setæ in the flesh causes the blood
to flow more freely.
“To allay the irritation set up by the bite of the bedbug, peroxide of
hydrogen or dioxygen may be used with good results.
“Tincture of iodine either at ordinary or double strength is also a
good counterirritant for use in cases of flea, mosquito, bedbug, and
other insect bites, but should be used with caution on the tender skin
of small children and on those who are affected with or disposed to
eczemic disorders.”

“Natural Enemies of the Bedbug.

“Living always in houses as it does and being well concealed, the
bedbug is not normally subject to much if any control by natural
enemies. Certain other household insects, however, do occasionally
prey upon the bedbug, as, for example, the house centipede and the
common little red house ant. Such enemies, however, are of very
small importance and yield little, if any, effective control except under
very exceptional circumstances.”

“Remedies.
“Undoubtedly the most efficient remedy for the bedbug is to
fumigate the infested house or rooms with hydrocyanic-acid gas.
This gas will penetrate into every crevice in the house or room where
the bedbugs conceal themselves and has an immediate
effectiveness which gives it an important recommendation,
especially when the infestation is considerable or of long standing.
This method of fumigation should be intelligently employed, as the
gas is deadly poisonous.” Five ounces of potassium cyanide per
1,000 cubic feet of space should be employed; exposure, one hour.[2]
Ten ounces per 1,000 cubic feet would be better.
[2] Creel, R. H., and Faget, F. M., Cyanide Gas for the Destruction
of Insects, with Special Reference to Mosquitoes, Fleas, Body
Lice, and Bedbugs: Public Health Reports, June 9, 1916, pp.
1464–1475; Reprint No. 343.
“The fumes of burning sulphur are also a very efficient means of
control where the conditions are such that this method can be used,
readily destroying the insect in all stages, including the egg. The
treatment is inexpensive compared with the use of hydrocyanic-acid
gas and offers much less risk of danger to human beings. There is,
however, a considerable risk of injury to household fabrics,
furnishings, and wall papers from the strong bleaching quality of
sulphur fumes. This danger will be somewhat diminished if the
fumigation can be done at a time when the room or house is
thoroughly dried out, as in winter by a furnace or other heating
system. Further precautions should be taken by removing all metallic
surfaces from the room or building, or by protecting them with a
coating of vaseline.”
Four pounds of sulphur are recommended for each 1,000 cubic
feet of space, and the building should be closed for the treatment for
at least five or six hours. “Sulphur candles may be used where
available, or the sulphurous gas or fumes can be generated by
burning the sulphur in a dish placed in the center of the room, and
for protection set within a larger vessel. Thoroughgoing precautions
must be taken to prevent accidental overflowing or the starting of a
fire, and after the fumigation the house should be given a thorough
airing.
“Other gases have been experimented with, such as formalin and
the vapors of benzine, naphthalene, and camphor, but these gases
are of little value. Similarly, insect powders are of little value, largely
from the difficulty of getting them into the crevices and other places
of concealment of the insects.
“The old-fashioned household remedies referred to below are
effective enough, though at a greater cost of time and personal
effort. They will, however, be often of much service in the case of
slight or recent infestations, or where the employment of more
poisonous and troublesome gases is objected to or is impracticable.
Of these simple methods of control perhaps the most efficient is in
very liberal applications of benzine or kerosene, or any other of the
lighter petroleum oils, introduced with small brushes or feathers, or
by injecting with syringes into all crevices of beds, furniture, or walls
where the insects may have concealed themselves. Corrosive
sublimate is also of value, and oil of turpentine may be used in the
same way. The liberal use of hot water, wherever it may be
employed without danger to furniture, etc., is also an effectual
method of destroying both eggs and active bugs.[3] A 5 per cent
solution of compound solution of cresol (liquor cresolis compositus)
in kerosene forcibly applied with a large plant sprayer is effective if
frequently applied.
[3] “A remedy for the bedbug has been devised by Mr. R. H. Pettit
(‘Notes on two insecticidal agents,’ 10th Rpt. Mich. Acad. Sci., p.
159–160, 1908) as a substitute for hydrocyanic-acid gas and
sulphur, and is reported to have proved very successful. The
preparation of this insecticide and its application are described as
follows:
“Alcohol is drawn through pyrethrum in a funnel until the powder
is well washed and a large part of the resinous principle extracted.
To do this, the powder is placed in a large funnel with filter-plate
and a layer of cotton wool at the bottom. An aspirator is attached
and the alcohol is at first slowly and later rapidly sucked through
six or eight times, during which operation it becomes highly
colored. To this liquid as a basis, are added several oils to give
permanence to the application. Both alcohol and pyrethrum
evaporate so quickly that it was thought best to carry in some
heavier volatile oils whose effects would last several days or even
weeks. The formula when completed stands as follows:
“To the extract made by washing 400 grams of pyrethrum with
2,000 c. c. of strong alcohol, are added—

50 grams gum camphor.

150 c. c. cedar wood oil.
25 grams oil citronella.
25 grams oil lavender.

“The application is best made with a large-sized atomizer, one

holding a pint or more and working with a piston instead of a
rubber bulb. * * * To obtain the best results, repeat the treatment
after about two weeks. We have tried this mixture repeatedly and
with uniformly gratifying results. Usually one application, if
thoroughly made, put a period to the complaints, about eight to
ten ounces being required in an average sleeping room. The odor
remains some little time in a room, but is not disagreeable to the
average person.
“This remedy can be readily prepared by a pharmacist in any
drug store.”
“Various bedbug remedies and mixtures are for sale, most of them
containing one or another of the ingredients mentioned, and these
are frequently of value. The great desideratum, however, in a case of
this kind, is a daily inspection of beds and bedding, particularly the
seams and tufting of mattresses, and of all crevices and locations
about the premises where these vermin may have gone for
concealment. A vigorous campaign should, in the course of a week
or so at the outside, result in the extermination of this very obnoxious
and embarrassing pest.”
“Temperature control.—The possibility of temperature control is
indicated in the discussion elsewhere of the effect of temperature on
this insect. A temperature maintained below freezing for 10 or 15
days destroys the eggs, and this temperature continued for 15 days
to a month will destroy the newly hatched young. It may be,
therefore, that if infested houses in cold climates should be opened
up and allowed to remain at a temperature well below freezing for a
considerable period, all eggs and the young, and possibly most if not
all of the adults, would be exterminated. This method of control might
perhaps be practicable at least in the case of summer houses in the
North which are left untenanted in the winter.
“The maintaining of high temperatures may be an even more
efficient method of control. The activity of the bedbug is at its
greatest between 60° and 70° to 75°. As indicated elsewhere, in a
temperature of 96° to 100° F., accompanied with a high degree of
humidity, newly hatched bedbugs perish within a few days, and, if
this temperature is raised to 113° F., in a few minutes.[4] A
temperature of 113° will also destroy the eggs, and with these higher
temperatures the item of humidity is not apparently important.”
[4] Editorial note.—An account of successful use of live steam
to eradicate bedbugs in bunkhouses, as practiced by a lumber
company in Oregon, was published in Public Health Reports, Nov.
28, 1919, pp. 2713–2714. In that instance steam pipes were
tapped, after closing all doors and windows, and a temperature of
160° F. was held for approximately 3 hours. The officials of the
company stated that 2 months after the steaming no signs of
bedbugs had been found.
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Transcriber’s Notes:
Archaic and variable spelling has been preserved.
Variations in hyphenation and compound words have been
preserved.
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