The best prevention for Dutch disease effects is to avoid or reverse the initial real ________ of the currency.
A) appreciation
B) depreciation
C) devaluation
D) purchasing power

Question

Quizplus · Accepted Answer

Dutch disease occurs when a country experiences a significant increase in revenue from natural resource exports, leading to an appreciation of the currency. This appreciation makes other sectors of the economy less competitive, leading to a contraction in industries such as agriculture and manufacturing. Thus, an appreciation in the currency is the initial cause of Dutch disease, and preventing or reversing it through monetary policy or other measures is the best prevention.

The Best Prevention for Dutch Disease Effects Is to Avoid