V5-86 In a country that is experiencing neoclassical growth with increasing savings rate, investors can expect which of the following: higher dividends? higher dividend growth? A. No No B. No Yes C. Yes No D. Yes Yes anyone heard neoclassical growth ?
neoclassical growth - labor productivity is growing because of increasing investment of capital, law of diminishing returns on capital apply. therefore, increased savings -> decreased real rate of return (lower growth) -> assume higher dividends but lower dividend growth -> C
HERE IS HOW I THINK ABOUT IT NC growth = lower savings = low interest rates (people save when op cost of investing $ in bank is low) = low inflation = higher dividends.