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Besides government spending injection through increased government purchases - increased demand required ( necessary ) to raise output and employment levels could be brought about by increases in consumption. Notice how the oil products in the world market fluctuate ( behave ) daily. As governments have their approved and prepared budgets annually, the insinuated output and updated employment levels are always moving about ( whether an oil seller (supplier) nation or an oil buyer ( on demand ) nation). Which economic principle then decides the changes accordingly?
One has to consider that tax cuts increase the disposable income or consumers. What about its impact on spending? The ability of a consumer to spend ( marginal propensity to consume ) relates the answer. People will save ( as much as they want ) and also, spend ( as much as they could ) from whatever amount of disposable income
they have within their capacity. Look at the business sector of shopping malls. Investors ( sellers ) hope always they will find and meet more than enough demand each year so as to maintain employment capability due to increase in consumption. Bear in mind that the marginal propensity to consume multiplied by tax cut gives the initial increase in consumption.
Take notice now of spending. The cumulative change in spending is the product of the multiplier and the initial change in consumption. This gives analogy to cumulative change in consumption which is the product of the multiplier, the marginal propensity to consume and tax cut. Now we know that the initial consumption stimulus is the product of the marginal propensity to consume and the tax cut. By this, we get to know the relation of the desired fiscal stimulus, namely:
1. Quotient of desired AD increase and the multiplier;
2. Product of desired tax cut and marginal propensity to consume.
Tax cuts paralyzes ( immobilizes ) injection spending.
