Suppose that the mark-up of goods prices over marginal cost is \(5 \%\), 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 mark-up of prices over costs increases to \(10 \%\). What happens to the natural rate of unemployment? Explain the logic behind your answer.