In the Long Run, the Real Output Level _____

question 90

Multiple Choice

In the long run, the real output level _____.

• A)varies positively with the price level
• B)varies negatively with the price level.
• C)is equal to the natural level of real output at all price levels
• D)can be either greater than or less than the natural level of real output
• E)is equal to the natural level of real output at all price levels.

---

Definitions:

Unlevered Cost of Capital

The cost of capital for a company that has no debt, representing the risk of a firm's assets before the impact of financial leverage.

Financial Leverage

Use of borrowed funds to increase the potential return of an investment, also indicating how much a company relies on debt to finance its assets.

Static Theory of Capital Structure

A financial hypothesis that suggests there is an optimal capital structure for a company where the cost of capital is minimized, and the value of the firm is maximized.

M&M Proposition I

A theorem stating that in a perfect market, the market value of a company is unaffected by how that company is financed, regardless of whether through debt or equity.