I. Suppose that the markup of goods prices over marginal cost is 3% and that the wage-setting (WS) equation is W = P(1 – u), where u is the unemployment rate. a. What is the real wage, as determined by the price-setting (PS) equation? b. What is the natural rate of unemployment? c. Suppose that the markup of prices over costs increases to 6%. What happens to the natural rate of unemployment? Explain the logic behind your answer.
I. Suppose that the markup of goods prices over marginal cost is 3% and that the wage-setting (WS) equation is W = P(1 – u), where u is the unemployment rate. a. What is the real wage, as determined by the price-setting (PS) equation? b. What is the natural rate of unemployment? c. Suppose that the markup of prices over costs increases to 6%. What happens to the natural rate of unemployment? Explain the logic behind your answer.
Chapter1: Making Economics Decisions
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![I. Suppose that the markup of goods prices over marginal cost is 3% and that the wage-setting
(WS) equation is
W = P(1 – u),
where u is the unemployment rate.
a. What is the real wage, as determined by the price-setting (PS) equation?
b. What is the natural rate of unemployment?
c. Suppose that the markup of prices over costs increases to 6%. What happens to the
natural rate of unemployment? Explain the logic behind your answer.](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2F475639b2-474b-40a8-9f9b-40a10cc32c20%2Fb1ad6dd3-f03c-4778-b6ba-2b2d8160c0be%2Fvpyl506_processed.png&w=3840&q=75)
Transcribed Image Text:I. Suppose that the markup of goods prices over marginal cost is 3% and that the wage-setting
(WS) equation is
W = P(1 – u),
where u is the unemployment rate.
a. What is the real wage, as determined by the price-setting (PS) equation?
b. What is the natural rate of unemployment?
c. Suppose that the markup of prices over costs increases to 6%. What happens to the
natural rate of unemployment? Explain the logic behind your answer.
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