Suppose you are given an economy where only bread is produced and consumed. Suppose further that a loaf of bread costs $2, and since only bread is produced the price level in the economy is P=2. Workers in the factories for bread would like to consume 300 breads per year which is equivalent to the annual real wage (the wage in terms of bread). The Union of Bread-making Workers has to negotiate a labor contract with the factor managers for the next two years. Workers and their representatives assume that there will be no changes in the price level in the next two years, so their expected price level is $2 per bread. a) What will be the nominal wage workers and their union demand? b) Assume now that managers agree to pay the demanded W from part a). But after a year the price of bread increases by 100% to $4. Does the real wage change and if yes by how much? c) What is the effect of the change in real wage in part b) on the managers' decision to demand labor (in terms of workers or working hours). d) What will happen when after two years the labor contract has to be renewed? What will be the nominal wage unions will ask for if we assume that workers would still like to consume 300 breads a year and expect an unchanged P=$4 for the next two years? e) Suppose now that workers decide to read "The Economist" regularly and to inform themselves about inflation forecasts. They learn that the price of bread will increase by 100% every year. What would be the W they would demand in a two-year labor contract? How would this affect real wage?