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2. (a) A labour contract provides for a first-year wage of E10 per hour, and specifies that the real wage will rise by 3 percent in the second year of the contract. The CPI is 1.00 in the first year and 1.07 in the second year. What euro wage must be paid in the second year (10 marks) (b) Assume that employers and workers both forecast that prices will increase by 2 per cent next year. Using a SRAS diagram show what would happen to output if inflation turned out to be (i) 3 per cent (5 marks) (ii) 1 per cent