2.2 THE SIMPLEST WAY TO ANALYZE AN ECONOMY'S AGGREGATE TREND...

Section 4.2.2

The simplest way to analyze an economy's aggregate trend growth is to split it into

growth from changes in employment (growth from labor inputs), and

growth from changes in labor productivity.

For longer-term analysis, growth from changes in employment is broken down further

into growth in the size of the potential labor force and growth in the actual labor force

participation rate.

Growth from changes in Percent

Growth in potential

labor force +1.9

Employment

Growth in labor

force participation −0.3

+ Labor productivity Growth in labor

productivity +1.4

=Estimate of GDP growth rate 3.0

3.) Using the data in Exhibit 2 and Fiske's preferred approach, the estimated expected

annual return for US large-cap equities over the next 10 years is closest to:

A. 7.9%.

B. 7.6%.

C. 7.4%.

Answer = B

“Capital Market Expectations,” John P. Calverley, Alan M. Meder, Brian D. Singer, and

Renato Staub