A domestic economy has a persistent annual inflation rate of 7%, while its major trading partners experience an average inflation rate of 2%. The government of the domestic economy decides to maintain a fixed nominal exchange rate against the currencies of its trading partners. Analyze the consequences of this policy on the domestic economy's international price competitiveness over time. In your analysis, explain how the prices of domestic goods relative to foreign goods will change and what the likely impact will be on the country's trade balance.