Real Wage Definition, Formula & Examples
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Real Wage Definition, Formula & Examples
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What Are Real Wages? Definition & Calculation
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Suppose that the markup of goods prices over marginal cost is 10% (m = 0.1) and that the wage-setting equation is W = P x (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 increases to 15% (m = 0.15). What happens to the natural rate of unemployment? Explain the logic behind your answer.
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