Which of the Following Is Consistent with Classical Growth Theory

question 358

Multiple Choice

Which of the following is consistent with classical growth theory?

• A) Real GDP per person will never permanently increase.
• B) Real GDP per person will increase because technological change induces investment.
• C) As real GDP increases, there will be a decrease in the rate of population growth.
• D) Competition destroys innovation and decreases profit.

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Definitions:

Dividend Growth Model

A model that determines the current price of a stock as its dividend next period, divided by the discount rate, less the dividend growth rate.

Cost of Equity

The theoretical compensation a company provides to its shareholders for the risk they assume by investing their funds.

Beta

A measure of the volatility of a stock or portfolio compared to the volatility of the overall market.

Dividend Growth Model

A method of valuing a company's stock price by using predicted dividends and discounting them back to present value.