Final answer:
Alyssa earns a nominal wage of $12.00 per hour, and if the price of sparkling water is $2.40 per gallon, she can buy 5 gallons of water per hour. If actual inflation is lower than the expected 3%, resulting in a price rise to $2.45 per gallon instead, her real wage increases by approximately 2.5% instead of the nominal 3%.
Step-by-step explanation:
If Alyssa earns a nominal wage of $12.00 per hour and the price of sparkling water is $2.40 per gallon, her wage in terms of gallons of sparkling water is 5 gallons per hour ($12.00 / $2.40 = 5). When negotiating wages, expectations about the price level and possible changes are factored into the agreement. If the actual price level turns out to be lower than expected, a worker's wage would be higher in real terms than both the worker and employer expected when they agreed to the wage.
Alyssa's agreed wage rise to $12.36 in 2013 reflects an expected 3% inflation. However, with actual inflation at 2%, the price of sparkling water increased to only $2.45 per gallon. Consequently, Alyssa's nominal wage increased by 3%, but her real wage increased by approximately 2.5% (($12.36/$2.45) / ($12.00/$2.40) - 1). This is because Alyssa's earning power, in terms of gallons of sparkling water, has increased more than the prices have.