MCQs — Venezuela Economy & Oil Crisis

Q1. Consider the following statements regarding “Resource Curse”:

1. It refers to the paradox where countries with abundant natural resources often experience slower economic growth.

2. Over-dependence on a single commodity can lead to neglect of other productive sectors.

3. It is also associated with Dutch Disease.

Which of the statements given above is/are correct?

a) 1 and 2 only
b) 2 and 3 only
c) 1 and 3 only
d) 1, 2 and 3

Answer: d)

Explanation:
Venezuela is a classic example where oil abundance led to mono-dependency, weak diversification, and structural decline.

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Q2. With reference to Venezuela’s oil sector, consider the following:

1. Most of Venezuela’s crude oil reserves are extra-heavy oil.

2. Extraction of extra-heavy crude requires diluents for processing and transport.

3. Availability of diluents was affected by international sanctions.

How many of the above statements are correct?

a) Only one
b) Only two
c) All three
d) None

Answer: c)

Explanation:
Sanctions prevented supply of diluents, affecting refining and export capability.

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Q3. Which of the following best explains the decline in Venezuela’s GDP per capita after 2014?

a) Global fall in oil prices alone
b) Internal mismanagement and lack of diversification
c) U.S. sanctions only
d) Withdrawal from OPEC

Answer: b)

Explanation:
Sanctions aggravated the crisis — but structural weaknesses already existed.

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Q4. Consider the following pairs:

Event — Impact on Venezuela

1. 1970s Oil Boom — Rise in per capita income

2. 2002–03 Oil Strike — Replacement of PDVSA management

3. Post-2014 Oil Downturn — GDP collapse and fiscal stress

How many pairs are correctly matched?

a) Only one
b) Only two
c) All three
d) None

Answer: c)

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Q5. “Dutch Disease” is best described as:

a) Inflation caused by rising oil prices
b) Decline of manufacturing due to resource-driven currency appreciation
c) Fiscal deficit caused by oil sector subsidies
d) Recession caused by fall in crude oil demand

Answer: b)

Explanation:
High oil revenue → currency appreciation → manufacturing becomes uncompetitive.

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Q6. With reference to OPEC, consider the following statements:

1. Venezuela is a founding member of OPEC.

2. OPEC was formed to coordinate oil production and pricing among member countries.

3. All OPEC members have similar levels of economic diversification.

Which of the statements given above is/are correct?

a) 1 and 2 only
b) 2 and 3 only
c) 1 only
d) 1, 2 and 3

Answer: a)

Explanation:
Diversification varies widely among members — statement 3 is incorrect.

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Q7. Which of the following factors contributed to the decline of PDVSA’s performance?

1. Bureaucratisation and politicisation of management

2. Years of under-investment in technology and maintenance

3. Loss of skilled technical workforce

4. Excessive privatisation of oil assets

Select the correct answer using the code below:

a) 1, 2 and 3 only
b) 2 and 4 only
c) 1 and 4 only
d) 1, 2, 3 and 4

Answer: a)

Explanation:
PDVSA remained state-controlled — decline was due to mismanagement, not privatisation.

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Q8. Which of the following are effects of international sanctions on Venezuela’s oil economy?

1. Restriction on access to financial markets

2. Freezing of overseas assets

3. Fall in export revenues

4. Increase in domestic manufacturing output

Select the correct code:

a) 1, 2 and 3 only
b) 2 and 4 only
c) 1 and 4 only
d) 1, 2, 3 and 4

Answer: a)

Explanation:
Sanctions worsened economic contraction — they did NOT boost manufacturing.

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Q9. Venezuela’s share in global crude oil exports declined from about 4% in the 1990s to 0.35% in 2023 primarily due to:

a) Fall in global demand for crude oil
b) Reduction in proven reserves
c) Production decline and infrastructure decay
d) Lower domestic energy consumption

Answer: c)

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Q10. Which of the following lessons are most relevant for resource-rich economies like Venezuela?

1. Invest windfall revenues in diversification

2. Maintain fiscal buffers during boom years

3. Reduce dependence on commodity exports

Select the correct answer:

a) 1 and 2 only
b) 2 and 3 only
c) 1 and 3 only
d) 1, 2 and 3

Answer: d)