Question 3 Suppose that the wage-setting equation (WS) is W = P(1 - 2u), where W is the nominal wage, P is the price level and u is the natural level of unemployment rate. a) If u is 3% how much is the real wage and how much is the markup on goods' prices over costs, u? (20 marks) b) Suppose that the markup of prices over costs increases to 10%. How much is now the real wage and the natural rate of unemployment? Graphically show and explain what will happen to the natural rate of unemployment, real wage and price level by using the WS-PS model. (30 marks)