The natural rate of unemployment
Suppose that the markup of goods prices over marginal cost is 5%, and that the wage-setting equation is
![816_da42a13e-c88c-4c62-afd1-e40585970e9f.png](https://secure.tutorsglobe.com/CMSImages/816_da42a13e-c88c-4c62-afd1-e40585970e9f.png)
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 the logic behind your answer.