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Suppose that the markup of goods prices over marginal cost is5%, and that the wage-setting equation is
Suppose that the markup of goods prices over marginal cost is 5%, and that the wage-setting equation is W = P(1-u), where u is the unemployment rate. a. [5 points] What is the real wage, as determined by the price-setting equation? b. [5 points] What is the natural rate of unemployment? C. [5 points] Suppose that the markup of prices over costs increases to 10%. What happens to the natural rate of unemployment? Explain the logic behind your answer.