Suppose that the markup of goods prices over marginal cost is 6%, and that the wage-setting equation is W=P(1-u) 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 11%. What happens to the natural rate of unemployment?
Suppose that the markup of goods prices over marginal cost is 6%, and that the wage-setting equation is W=P(1-u) 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 11%. What happens to the natural rate of unemployment?
Chapter1: Making Economics Decisions
Section: Chapter Questions
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Transcribed Image Text:Suppose that the markup of goods prices over marginal cost is
6%, and that the wage-setting equation is W=P(1-u)
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 11%.
What happens to the natural rate of unemployment?
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