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.