Suppose an economy is characterized by the equations below.

Price setting: P = (1 + m)(W/A) Wage setting: W = Ape (1 - u) a. Solve for the unemployment rate if Pe = P but A does not necessarily equal A. Explain the effects of A/A on the unemployment rate. Now suppose that expectations of both prices and productivity are accurate. b. Solve for the natural rate of unemployment if the markup (m) is equal to 5%. c. Does the natural rate of unemployment depend on productivity? Explain