Explain how the mechanism described here works

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Reference no: EM13770272

The conventional wisdom has been that inflation is bad for the economy. If our inflation is running higher than our trading partners' inflation, according to this argument, our growth slows and jobs are lost.

a. Explain how the mechanism described here works.

b. How could this problem be avoided without curbing our inflation?

The question is in reference to a textbook chapter on Purchasing Power Parity. It looks at inflation with a fixed or flexible exchange rate, the PPP rule of thumb and the PPP exchange rate.

Reference no: EM13770272

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