Question #23
Reading: Reading 6 Economic Growth
PDF File: Reading 6 Economic Growth.pdf
Page: 11
Status: Unattempted
Question
Which of the following statements regarding the long-run rate of stock market appreciation and the sustainable growth rate of the economy is most likely correct?
Answer Choices:
A. Long-term growth in the aggregate stock market valuation is most closely correlated to long term growth in GDP
B. Long-term growth in the aggregate stock market valuation is most closely correlated to long term growth in P/E ratios
C. Long-term growth in the aggregate stock market valuation is most closely correlated to long term growth in earnings relative to GDP
Explanation
In the long run both the E/GDP and P/E ratios will have zero growth. Stock market
appreciation is therefore most closely related to growth in GDP.