Poornima cunently earns a V wage of $12.00 per hour: in other words, the amount of her paycheck each week is $12.00 per hour times the number of hours she works. Suppose the price of milk is $2.40 per gallon: in this case, Poomima's V wage, in terms of the amount of milk she can buy with her paycheck, is E gallons of milk per hour. when workers and rms negotiate compensation packages, they have expectations about the price level (and changes in the price level) and agree on a V wage with those expectations in mind. If the price level turns out to be lower than expected, a worker's V wage is V than both the worker and employer expected when they agreed to the wage. Poornima and her employer both expected ination to be 4% between 2012 and 2013, so they agreed, in a twoyear contract, that she would earn $12.00 per hour in 2012 and $12.48 per hour in 2013. However, suppose ination between 2012 and 2013 actually turned out to be 2%, not 4%. For example, suppose the price of milk rose from $2.40 per gallon to $2.45 per gallon. This means that between 2012 and 2013, Poomima's nominal wage V by , and her real wage V by approximately V