From 2005 to 2012, Peru and Panama recorded the quickest economic growth rates in the Americas. The two countries are different in both population size and 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 the average person living three years longer than in Peru.
From 2008 to 2013, Peru’s average yearly inflation rate was $2.7\%$. One reason for this was the Central Bank of Peru carefully managing the country’s interest rate and exchange rate. Panama has no central bank and recorded a different average yearly inflation rate (see Fig. 1).
From 2008 to 2013, the unemployment rate declined more in Panama than in Peru. The drop in Panama’s unemployment rate was mainly the result of construction on a seven-year scheme to expand the Panama Canal. Panama’s lower unemployment rate was one factor behind its lower poverty level than 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 both countries, the USA, China and Japan are major trading partners.
Roughly $75\%$ of workers in Peru are employed in the service (tertiary) sector, compared with $80\%$ in Panama. Panama’s important service industries include insurance and banking. It has the biggest insurance market in Central America. The number of firms in the market, including multinational companies, is rising. This is increasing competition in the market. 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, as a result, there is no direct government control of its banking sector. In recent years, the average size of the commercial banks has increased. There is some argument over whether larger banks are good for 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 information in Fig. 1, describe what happened to the price level in Panama between $2008$ and $2009$.
(b(ii))[2]
Using information in Fig. 1, explain in which year the price level was highest in Panama.
(c)[4]
Using information from the extract and in Fig. 1, explain the likely effects of Peru and Panama having different average annual inflation rates between $2008$ and $2013$.
(d)[5]
Discuss whether a fall 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 growth 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: “higher GDP per head/average income” …