Suppose that the markup of goods prices over marginal cost is 10%, and that the wage setting equation is w = p (1 - .5u + z), where u is the unemployment rate and z is a variable that reflects the impact of minimum wage policy and unemployment benefits on the wage setting relations.

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

b. what is the natural rate of unemployment if z=0.009?

c. suppose that due to the competition the markup of prices over costs decreases to 2%, and z increases to 0.01 due to the changes in minimum wage policy. what happens to the natural rate of unemployment? explain the logic behind your answer.

using the ws and ps relations explain separately the impacts of a reduction and of an increase in the unemployment rate on the real wages.