Условие:
Consider an economy where the mark-up of goods prices over marginal cost is 5% and the\nwage-setting equation is W= P e(1→ u), where u is the unemployment rate and P e is the\nexpected price level.\nWe first focus on the case where the expected price level is equal to the actual one (P e = P ).
(a) Can you determine the real wage W/P and the natural rate of unemployment un using\nthe information above?
(b) Suppose now that the mark-up rate increases from 5% to 10%. What implications does\nthis change have on the natural rate of unemployment and why?\nNow we turn to the case where the expected price level is not necessarily equal to the actual
(P e
↑= P ).
(c) Suppose currently P = 2.1 and P e = 2.5. What is the current level of the real wage\nand the corresponding unemployment rate?
(d) Draw the current labor market equilibrium in an u ↓ W/P labor market diagram, and\nexplain how the economy will move towards the natural rate of unemployment over\ntime. Discuss which variable will adjust in order to enable this transition.

