Explain which of the following are changes in injections and which are changes in withdrawals from the nation's circular flow of income. Assuming ceteris paribus, specify (for every situation below) whether the change in each case will reflect an increase or a decrease in aggregate demand.

1.The government cuts spending on infrastructure.

2.Firms borrow more money to expand their production facilities as they anticipate an increase in consumer demand.

3.A depreciation of the exchange rates makes holidays abroad less desirable.

4.The government has decided to lower interest rates.

5.Other countries begin to recover from the recession.

Using AD/AS macroeconomic diagram, explain how the AD will change as a result of the changing condition stated in the example. How will this affect real GDP and price level?

1.The government has increased the income tax rates on personal income.

2.Interest rates have decreased.

3.The level of income of people living in a trading partner economy has risen.