Okun's Law States That for Each Percentage Point That the Unemployment

question 54

Multiple Choice

Okun's Law states that for each percentage point that the unemployment rate is above its natural rate, there is a _{--------------------} percent gap between real GDP and potential GDP.

• A)8
• B)2
• C)4
• D)6
• E)random

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Definitions:

Cost of Capital

The rate of return that a company needs to earn on its investment projects to maintain its market value and satisfy its investors and creditors.

Internal Rate of Return

The discount rate at which the net present value of all the cash flows (both positive and negative) from a project or investment equals zero.

Multiple IRRs

The situation where a project has more than one internal rate of return, occurring due to unconventional cash flows.

Reinvestment Assumption

The theory that cash flows will be reinvested at a constant rate, often used in financial modeling.