Suppose that the markup of the prices of products over wage cost, z, is 10%, and that the wage-setting equation is

W = P.(1 - 2m + z)

where m is the unemployment rate and z is the unemployment benefit/minimum wage.

a. What is the real wage, as determined by the price-setting equation?

b. Solve for the natural rate of unemployment

c. What happens to the natural rate of unemployment if z falls from 10% to 5%? Explain your answer.