Suppose that money demand depends on disposable income, so that the equation for the money market becomes

Question:

Suppose that money demand depends on disposable income, so that the equation for the money market becomes
M/P = L(r , Y − T).
Analyze the impact of a tax cut in a small open economy on the and income under both floating and fixed exchange rates.
Exchange Rate
The value of one currency for the purpose of conversion to another. Exchange Rate means on any day, for purposes of determining the Dollar Equivalent of any currency other than Dollars, the rate at which such currency may be exchanged into Dollars...