Question

Calculate the real wage(W/P) if the value of the markup, u=0.1

Answer 1

Calculate the real wage(W/P) if the value of the markup, u=0.1

Price setting equals the wage-setting equation via the real wage:

$\frac{w}{p}=\frac{1}{1+m}=1-u$

Where m is markup and u is the unemployment rate.

Real wage = $\frac{w}{p}=\frac{1}{1+m}=\frac{1}{0.1}$

= $\frac{1}{1.1}$

Therefore, real wage $\frac{w}{p}$ = 0.9091