the article, which of the following statements about the Dutch Disease are correct? Check all that apply. D As soon as a country's resource revenues begin to rise, the Dutike Disease is imminent. O Increased demand for nontraded goods increases prices in the nontraded goods sector, which boosts the real exchange rate. The Dutch Disease can be cured by allowing manufacturing jobs to move freely to other countries. D Currency appreciation makes the nonbooming tradable sector less attractive to the workforce, which turns to the nontrade sector, like services.
the article, which of the following statements about the Dutch Disease are correct? Check all that apply. D As soon as a country's resource revenues begin to rise, the Dutike Disease is imminent. O Increased demand for nontraded goods increases prices in the nontraded goods sector, which boosts the real exchange rate. The Dutch Disease can be cured by allowing manufacturing jobs to move freely to other countries. D Currency appreciation makes the nonbooming tradable sector less attractive to the workforce, which turns to the nontrade sector, like services.
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
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1.
Transcribed Image Text:According to the article, which of the following statements about the Dutch Disease are correct? Check all that apply.
O As soon as a country's resource revenues begin to rise, the Dutik Disease is imminent.
O Increased demand for nontraded goods increases prices in the nontraded goods sector, which boosts the real exchange rate.
O The Dutch Disease can be cured by allowing manufacturing jobs to move freely to other countries.
D Currency appreciation makes the nonbooming tradable sector less attractive to the workforce, which turns to the nontrade sector, like
services.
Suppose a country experiences symptoms of the Dutch Disease. Which of the following policies could help to protect the economy?
O Helping particular companies or industries
O Discouraging investment in the nonbooming tradable sector
O Promoting trade liberalization and innovation
Discouraging high rates of saving
Transcribed Image Text:1. Background information and an article
Economies that rely heavily on exploitation and export of natural resources may experience the surprisingly damaging effect of large inflows of capital.
In the 1960s, a discovery of large natural gas deposits in the North Sea and subsequent Dutch ownership of natural gas resources pushed up the
country's real exchange rate and ultimately caused a decline of the Netherlands' manufacturing sector in the 1970s. The term Dutch Disease was
coined in reference to the negative effect of an increase in revenues in the booming resource sector.
How can too much of a good thing be bad? Read the article in the scroll box and then answer the questions that follow.
V UNDERSTANDING THE DUTCH DISEASE, BY THE APLIA ECONOMICS CONTENT TEAM
How does an increase in revenues in the booming sector reduce incentives for engaging in activities in the nonbooming tradable sector? It all
begins with a rapid increase in the world demand for natural resources such as oil and gas. Rising revenues from natural resources increase the
demand for labor in the booming sector. This "resource movement effect" causes a shift in production from the lagging sector to the booming
sector. At the same time, the extra revenue pouring from the booming sector results in the "spending effect" in the market for nontraded goods by
pushing up demand (and, thus, the price) of nontraded g0ods. The rising demand for labor in the nontradable sector also attracts labor from the
lagging sector, but prices of the traded goods in the lagging sector are set internationally and cannot change.
As a result of a higher demand for natural resources, the country experiences an inflow of the foreign currency, which causes the real exchange
rate to increase and the nation's currency to appreciate. Consequently, the nation's exports become more expensive for other countries to buy.
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