Decreasing aggregate demand by $140 billion would be the net effect of the government increasing the taxes by $10 billion at the same time that it decreased spending by $5 billion.
The balanced budget multiplier is equal to 1 and can be summarized as If the government increases spending and taxes by the same amount, output increases by the same amount. When income taxes go up, consumers have less disposable income.
Governments influence aggregate household disposable income (after-tax income) by increasing or decreasing taxes. Tax increases take money out of household budgets, reducing disposable income. Tax cuts increase disposable income because households have more money at their disposal.
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