What is the natural rate of unemployment

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The natural rate of unemployment

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

W = P 11 - u 2 ,

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: EM13901419

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