What economic issue is referred to as Dutch disease?

• A. A negative impact of large currency inflows on manufacturing
• B. The depletion of natural resources
• C. High inflation rates due to commodity speculation
• D. The increase in agricultural productivity

Answer: (A)

Dutch disease is an economic phenomenon that occurs when a country experiences a significant increase in revenue from natural resources, such as oil or gas, leading to a rise in the national currency's value. This appreciation tends to have a detrimental impact on the manufacturing sector. As the currency strengthens, exports from the manufacturing industry become more expensive on the international market, driving down demand for these products. Consequently, the manufacturing sector may shrink, resulting in job losses and economic instability.

This connection is crucial for understanding how resource wealth can alter an economy’s structure, pulling investment and labor away from more diverse economic activities – particularly manufacturing – into the booming resource sector. While other options relate to aspects of economic effects, they do not directly encapsulate the specific scenario described by the term Dutch disease, which primarily highlights the negative impact on manufacturing due to large currency inflows that arise from resource exploitation.