1) Imagine that you run the Central Bank of India. Your goal is to stabilize income, and you adjust the money supply accordingly. Under your policy, what happens to the money supply, the interest rate, the exchange rate, and the trade balance in response to each of the following shocks? a. The Government raises taxes to reduce the budget deficit. (10 marks) b. The Government restricts the import of Japanese cars.(10 marks)

2.How are the following treated in the estimation of national income? Give reasons

a. Payment of pocket money to a child (3marks)

b. House rent allowance paid to the teachers by school (3marks)