I think it should have positive multiplier effect. But on page 185 of note 2 of Schweser, the explanation to problem 8 says the multiplier will be negative.
Since they are maintaining a balanced budget, the money kept if they didn’t do a tax cut would go directly towards increasing AD, whereas not all of it will if they do a tax cut.
If holding all else constant (i.e. operating leverage) a tax cut would have a negative multiplier effect. I believe the same effect of reducing debt and lowering leverage.
I have to do more reading. I thought a tax cut will increase AD, hence a positive multiplier effect.
A tax cut would increase AD if the alternative to the tax cut was that the govt hold a budget surplus. In the q you posted the govt was going to maintain a balanced budget, and hence, spend all the money it would have returned to taxpayers in the tax cut.