What is the natural rate of unemployment

Reference no: EM131145842

The natural rate of unemployment
Suppose that the markup of goods prices over marginal cost is 5%, and that the wage-setting equation is

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.

Reference no: EM131145842

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