Problem
Under the law of one price, the price of an internationally traded commodity in one nation in a two-nation world is equal to the exchange rate times the price of the same commodity in the other nation. Assuming that such a law holds, explain why, if the first nation would otherwise face no inflation at home, it will not be able to maintain in the long run both constant prices and a constant exchange rate in the face of inflation in the other nation.
The response should include a reference list. Double-space, using Times New Roman 12 pnt font, one-inch margins, and APA style of writing and citations.