Question 1

The effect that commodity exports can have on the exchange rate is known as:

Accepted Answer

The effect of commodity exports on the exchange rate is known as Dutch disease. This term refers to the negative impact that an increase in natural resource exports may have on a country's manufacturing sector and overall economic competitiveness. As commodity exports increase, demand for the country's currency also increases, leading to appreciation and potentially harming other sectors of the economy.

Question 2

The effects of commodity exports on the exchange rate and non-commodity exports is known as:

Accepted Answer

The term Dutch disease refers to the negative effects experienced by an economy that is heavily dependent on commodity exports. In particular, it describes how the influx of revenue from commodity exports can cause a country's exchange rate to appreciate, making non-commodity exports more expensive and therefore less competitive on the global market. This phenomenon is named after the Dutch experience in the 1960s, where the discovery of natural gas led to an appreciation of the exchange rate and a decline in the manufacturing sector.

Question 3

What is the term used to describe the effects of commodity exports on other parts of the economy?

Accepted Answer

The term used to describe the effects of commodity exports on other parts of the economy is Dutch disease. It refers to the negative impact on sectors like manufacturing and agriculture that occurs when a country's economy becomes overly reliant on natural resource exports (like oil or minerals), leading to a decline in other industries and a shift in the economy's structure.

Question 4

The tendency for commodity prices to increase and decrease over a number of years is known as:

Accepted Answer

The tendency for commodity prices to increase and decrease over a number of years is known as the commodity supercycle. It refers to a long-term trend of rising commodity prices, followed by a decline in prices over an extended period. This cycle can last several years or even a decade, and it is largely driven by supply and demand dynamics, global economic conditions, and geopolitical factors.

Question 5

Show and describe how a commodity boom results from an interaction of demand and/or supply.

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Question 6

Assume that Brazil is a major supplier of coffee in world markets. If a disease wiped out Brazilian production for five years, show what would happen to the world price of coffee.

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Question 7

Why are the prices of commodities so volatile?

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Question 8

Describe why the price of a commodity like soybeans can be naturally volatile. How could this create a macroeconomic problem for a small, relatively poor country such as Paraguay?

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Question 9

Draw a graph and show why commodity prices tend to be unstable. Why does this matter for Latin America?

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Question 10

Over the last 10 years there was a boom in the price of quinoa caused by an increase in demand. This boom was followed by a collapse in prices. Show and describe both the initial high price and the subsequent collapse.

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Question 11

Show why naturally commodity prices are very volatile. Why does this matter to Latin America?

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Question 12

Describe the importance of commodities in Latin America in terms of total exports and GDP.

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Question 13

Briefly describe how income from commodities can be used to enhance economic development.

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Question 14

Explain how the resource curse works to retard economic development in many countries that are commodity producers.

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Question 15

How are the resource curse and Dutch disease different?

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Question 16

Why hasn't the production and export of commodities made Latin America rich?

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Question 17

Part of the growth problem in Latin America is a result of problems with infrastructure and education. How is this related to primary commodities?

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Question 18

Explain how Dutch disease has hindered the development of manufacturing in Latin America.

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Question 19

Explain what the lithium triangle is.

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Quiz 5: Latin American and Primary Commodities