Economics · Oct / Nov 2025 · Paper 22 · Question 4

0455

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There are several policy measures a central bank or government can use to reduce unemployment. One policy measure a government could use to reduce unemployment is to increase its spending on building houses. The Federal Reserve, the central bank of the US, has two main aims. One is to maintain price stability and the other is to achieve full employment. Some central banks also have economic growth as a target, but none have HDI value as a target.

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4(a)[2]
Identify two policy measures a central bank could use to maintain price stability. Two from:
the rate of interest (1)
the money supply (1)
the exchange rate (1)
quantitative easing / tightening (1). 2 If more than two measures are given, consider the first three.
4(b)[4]
Explain two benefits to an economy of full employment. Logical explanation which might include the following.
High output / GDP (1)
maximum use of labour resource.
High tax revenue (1)
government could spend on e.g. education / healthcare (1).
Low spending on state benefits (1)
can keep taxes low / money saved can be spent on other things (1).
Low poverty / increase incomes (1)
enable people to purchase basic necessities / which could increase living standards (1). 4 One mark each for two benefits identified and one mark each for two explanations.
4(c)[6]
Analyse how an increase in government spending on building houses could reduce unemployment. Coherent analysis which might include the following. An increase in government spending on building homes may increase demand for building workers (1)
may increase demand for building materials (1)
demand for building materials workers / other workers related to building industry (1)
labour is a derived demand (1)
reduce structural unemployment (1)
increase incomes (1)
increase consumer expenditure (1)
increase total demand (1)
reduce cyclical unemployment (1)
increase GDP / economic growth (1)
may increase quality of homes (1)
improve health (1)
fewer workers may lose their jobs because of illness (1)
increase labour productivity which may increase demand for labour (1)
increase supply of houses (1)
reduce price of houses (1)
improve mobility of labour (1). 6 Reward, but do not expect reference to multiplier / multiplier effects.
4(d)[8]
Discuss whether or not an increase in a country’s economic growth rate will increase its HDI value. In assessing each answer, use the table opposite. Why it might:
increase in GDP may increase GDP per head if increase in GDP is greater than any rise in population
higher GDP per head may increase spending on good nutrition / good housing and as a result increase life expectancy
higher GDP per head may increase tax revenue, enabling a government to spend on education and healthcare
higher GDP per head may enable families to keep their children in education for longer. Why it might not:
higher GDP per head may result in more spending on demerit goods, lowering life expectancy
may lead to inflation hindering access to healthcare and education and increase inequality in the distribution of income
may be the result of higher military expenditure which will not increase HDI
income may become more unevenly distributed, meaning life expectancy and years of education of the poor may fall
more pollution may be created, lowering life expectancy
working hours and stress may increase, lowering life expectancy. Level Description A reasoned discussion which accurately examines both sides of the economic argument, making use of economic information and clear and logical analysis to evaluate economic issues and situations. One side of the argument may have more depth than the other, but overall, both sides of the argument are considered and developed. There is thoughtful evaluation of economic concepts, terminology, information and/or data appropriate to the question. The discussion may also point out the possible uncertainties of alternative decisions and outcomes. 6–8 A reasoned discussion which makes use of economic information and clear analysis to evaluate economic issues and situations. The answer may lack some depth and development may be one-sided. There is relevant use of economic concepts, terminology, information and data appropriate to the question. 3–5 Guidance Level Description There is a simple attempt at using economic definitions and terminology. Some reference may be made to economic theory, with occasional understanding. 1–2 A mark of zero should be awarded for no creditable content.

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