1. Government spending cut, and
2. Induce consumer spending cutbacks.

What aspects within government spending are likely to be affected?  Where upon the construction budget and defence budget had been tapped for Federal government spending cut, the respective employees would get smaller pay checks.   Eventually, they are to experience reduction on their consumption.  Personal effects like buying behavior pattern would be seen in the consumption component of Aggregate Demand.  Bear in mind, this also means income loss and at the same token, a savings phenomena reduction.

Is this happening within the U.S.A. – now that recession is in effect?  Perhaps, the economists of vital and giant financial institutions need to regroup and re-channel their resources (and do not articulate lavishly on insurance/health care).

Tax hikes (increases are used primarily to ” cool ” down the economy.  Why is this so? On a lighter note, government does not want to reach the ‘full-employment’ status.  (Not that they are after inflation or such).  Tax increases have these effects, namely:

1. Reduction of potential disposable income; and
2. Depletion of potential savings.

The excess Aggregate Demand is produced by the desired tax hike and the marginal propensity to consume.  People having higher tax bills means taxes are increased to the dollar by reducing both consumption and savings.

Should the range per household of income takers be smaller (per number of employed personnel) so as to gain effectively in declaring yearly their tax? Yes, but the higher the income, a corresponding rate applies.  Government has to keep in mind the notion of double taxation as their ’secret weapon’ in getting a fair-income from multinational companies (whether they like it or not).