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Central Bank Policy Decision
A central bank's policy committee is reviewing recent economic data to determine its next move on the key interest rate. The data shows that unemployment is low, inflation is stable but near the upper end of the bank's target, and the national capacity utilization rate has just been reported at 92%, a multi-year high. Analyze the significance of this high capacity utilization rate for the committee's decision. What is the primary economic risk if the bank were to lower interest rates in this environment?
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Central Bank Policy Decision
Two competing firms, Firm A and Firm B, produce identical products. Firm A is operating at 95% of its maximum production capability, while Firm B is operating at 60%. Both firms experience an identical, sudden, and significant increase in customer orders. Which of the following describes the most likely immediate response of each firm?