1. The natural rate of unemployment

Suppose that the markup 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 markup of prices over costs increase to 10%. What happens to the natural rate of unemployment? Explain the logic behind this.