From 2005 to 2012, Peru and Panama recorded the quickest economic growth rates in the Americas. The two countries vary in population size and in the scale of their economies. In 2013, Peru had a population of 30 million and a Gross Domestic Product (GDP) of US$340 billion. By comparison, Panama had a population of 3.6 million and a GDP of US$60 billion. Life expectancy was greater in Panama, with people living, on average, three years longer than in Peru.
During 2008 to 2013, Peru had an average annual inflation rate of 2.7%. This was due partly to the careful control of the country's interest rate and exchange rate by Peru's Central Bank. Panama does not have a central bank and recorded a different average annual inflation rate (see Fig. 1).
Fig. 1: Panama's inflation rate, 2008-2013. The vertical axis is labelled "inflation rate (%)" and the horizontal axis is labelled "years". The years shown are 2008, 2009, 2010, 2011, 2012 and 2013.
From 2008 to 2013, the unemployment rate fell by more in Panama than in Peru. The drop in Panama's unemployment rate was mainly caused by construction work on a seven-year project to widen the Panama Canal. Panama's lower unemployment rate was one reason why poverty was lower there than in Peru in 2013.
Peru had a trade in goods surplus whereas Panama had a trade in goods deficit. Both countries export gold and fish and import oil and cars. For each country, the USA, China and Japan are important trading partners.
Around 75% of workers in Peru are employed in the service (tertiary) sector compared with 80% in Panama. Key service industries in Panama include insurance and banking. Panama has the largest insurance market in Central America. The number of companies in the market, including multinational companies, is rising, which is making the market more competitive. Multinational companies also operate in the country's banking sector. It has several private sector commercial banks. It does not have a central bank and, therefore, does not have direct government regulation of its banking sector. In recent years the average size of the commercial banks has grown. There is some debate about whether larger banks benefit their customers.
(a)[2]
Using information from the extract, identify two reasons why Panama had a higher Human Development Index (HDI) value than Peru in 2013.
(b(i))[2]
Using the information shown in Fig. 1, describe how the price level in Panama changed between 2008 and 2009.
(b(ii))[2]
Using information from Fig. 1, explain in which year Panama's price level reached its peak.
(c)[4]
Using the extract and Fig. 1, explain the likely consequences of Peru and Panama having different average annual inflation rates during 2008 to 2013.
(d)[5]
Discuss whether a decrease in the unemployment rate will reduce poverty.
(e)[5]
Analyse why countries specialise and trade.
(f)[4]
Using information from the extract, describe two functions of a central bank.
(g)[6]
Discuss whether the expansion of a commercial bank will benefit its customers.
Worked solution & mark scheme
This 30-mark question has a full step-by-step worked solution and mark scheme. One marking point: “Greater GDP per head/average income” …