Suppose that the markup of Goods prices over marginal cost is 5% and that the wage-setting equation isn
W = P ( 1 – u ),
where u is the unemployment rate
a. what is the real wage, as determined by the price-setting equation?
b. what is the natural rate of unemployment?
c. suppose that the markup of prices over costs increases to 10%. What happens to the natural rate of unemployment? Explain.