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.

Mark scheme

Marking points from the official mark scheme (Oct/Nov 2025). The mark or mark type is shown in brackets.

1. [2] Two from: the rate of interest (1) the money supply (1) the exchange rate (1) quantitative easing / tightening (1).
2. [4] 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).
3. [6] 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).
4. [8] 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.