Suppose that the Phillips curve is given by : t e t = 0.08 + 0.1m 2ut where m is the markup of prices over wages. Suppose that m is initially equal to 20% but that as a result of a sharp increase in oil prices, m increases to 40% in year t and after. 3 (a) ( 5 marks) Why would an increase in oil prices result in an increase in m? (b) ( 5 marks) Find the natural rate of unemployment in this economy un, as a function of m. (c) ( 5 marks) What is the long-run effect of the increase in m on the natural rate of unemployment? ( Hint: you can compute the change in un when m changes from 20% to 40%) (d) ( 5 marks) Same question as in (c) but with the following Phillips curve t e t = 0.08 + 0.1m 4ut