Suppose an economy is characterized by the equations below.
a. Solve for the unemployment rate if Pe = P but Ae does not necessarily equal A. Explain the effects of (Ae /A) on the unemployment rate. Now suppose that expectations of both prices and productivity are accurate.
b. Solve for the natural rate of unemployment if the markup (m) is equal to 5%.
c. Does the natural rate of unemployment depend on productivity? Explain.