Answer:
12%
Explanation:
Given that,
Potential real GDP = $200 billion
Natural rate of unemployment = 6 percent
Actual rate of unemployment = 12 percent
Okun's law refers to the law which states the relationship between the losses in the production of a particular nation and the unemployment.
It also indicates that for every 1 percent, the actual rate of unemployment exceeds the natural rate of unemployment, then as a result there is a GDP gap of 2% is generated.
Cyclical unemployment:
= Actual rate of unemployment - Natural rate of unemployment
= 12% - 6%
= 6%
Negative GDP gap:
= 6% × 2
= 12%
Therefore, the of the negative GDP gap as a percentage of potential GDP for the economy is 12%.
Answer:
True or False Statements about the conceptual framework:
(a) False: The fundamental qualitative characteristics that make accounting information useful are relevance and faithful representation, which suggest materiality and completeness respectively.
(b) False: Relevant information must also be material in a financial statement user's decision, in addition to having predictive and confirmatory values.
(c) False: It is information that is relevant that is characterized as having predictive or confirmatory value, and not information that shows faithful representation.
(d) False: Comparability also refers to comparisons of a firm over time (which is appropriately described as consistency). This is in addition to the similar reporting of information by different companies.
(e) False: Enhancing characteristics do not relate only to faithful representation but also to relevance.
(f) True.
Explanation:
Faithful representation implies completeness. Relevance means that the disclosure will attract important consideration and is material to the matter. Therefore, users of financial reports base their decisions on relevant information and not irrelevant details.
One is moving and the other isn’t
The MM Theory with taxes implies that firms should issue maximum debt. In practice, this is not true because Bankruptcy is a disadvantage to debt.
The Modigliani-Miller theorem states that a firm's capital structure does not affect its value. The theorem states that market value is determined by the present value of future earnings. This theorem has been influential since it was introduced in the 1950s.
Full market investors can borrow for the same cost as they lend and invest rationally. It is also implied that the process has no transaction costs.
The mm theorem states that a company's capital structure is not a factor in its value. The theorem states that market value is determined by the present value of future earnings. This theorem has been influential since it was introduced in the 1950s.
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