_____________________Effect is an effect that describes

Solution

The Balassa-Samuelson effect states that productivity differences between the production of tradable goods in different countries explain large observed differences in wages and in the price of services and between purchasing power parity and currency exchange rates. It suggests that an increase in wages in the tradable goods sector of an emerging economy will also lead to higher wages in the non-tradable (service) sector of the economy. The accompanying increase in prices makes inflation rates  higher in faster-growing economies than it is in slow-growing, developed economies .