Economics • Economic BasicsHard
Which of the following phenomena best describes the 'Dutch Disease' in economic literature?
A. Hyperinflation caused by excessive monetization of fiscal deficits
B. Decline in the manufacturing sector resulting from the discovery and exploitation of natural resources✓ Correct Answer
C. Sudden capital flight triggered by foreign exchange reserve depletion
D. Mass unemployment caused by rapid automation in agricultural sectors
💡 Solution & Explanation
Dutch Disease describes the negative economic consequences where a massive boom in natural resource exports leads to currency appreciation, making other domestic export sectors like manufacturing uncompetitive. Capital flight relates to financial account crises rather than structural shifts caused by resource windflows. Hyperinflation is primarily driven by unrestrained money supply creation to finance government obligations. Economic diversification policies are often adopted by resource-rich regions to prevent industrial hollow-out.
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