Final answer:
The statement regarding the degree of financial leverage is true, as it measures changes in EPS relative to changes in EBIT. Leverage influences the economy, enhancing growth during good times and exacerbating downturns.
Step-by-step explanation:
The statement 'The degree of financial leverage measures the percentage change in EPS for every 1% move in EBIT' is true. Financial leverage refers to the use of borrowed funds to amplify the potential return on investment. Essentially, it serves as an indicator of the sensitivity of a company's earnings per share (EPS) to fluctuations in its earnings before interest and taxes (EBIT). In the context of a broader economic conversation, leverage influences the overall leverage cycle. When the economy is booming, financial institutions are more inclined to lend which increases the money and credit supply via the money multiplier effect. This can exacerbate economic growth, and potentially inflate asset prices, leading to bubbles. Conversely, during downturns, a reduction in lending can intensify the economic impact. This dynamic showcases the dual nature of leverage in economic cycles.