a) Distinguish the following concepts:

I. Income velocity and nominal income
II. Full employment and unemployment
III. Demand side and the supply side of the economy
IV. Real theory and monetary theory of interest

b) The following set of equations describe the economy of country A, in Africa.
C= 2000 + 0.75Yd …………………….Consumption equation
I= 3600 …………………………………… Investment
G= 3600 …………………………………Government expenditure
X= 2550 ………………………………….. exports
M= 410 + 0.3Y ……………………….import equation
T= 100 + 0.25Y…………………………Tax equation

Required:

i)Compute the equilibrium National income and imports for the country A (1mrk)

ii) Compute the tax multiplier and the government spending multiplier (2 mrks)

c) With the aid of well labelled diagrams distinguish between relative income hypothesis and lifecycle income hypothesis. (9 mrks)

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