Learn Before
Delayed Investment Response to Rising Capacity Utilization
Although a sustained rise in capacity utilization encourages firms to invest in expanding their production capabilities, this response is often delayed. The process of building new plants and installing equipment takes time. Moreover, firms require confidence that the higher demand will be sustained before committing to significant capital expenditures.
0
1
Tags
Economics
Economy
Introduction to Macroeconomics Course
Ch.4 Inflation and unemployment - The Economy 2.0 Macroeconomics @ CORE Econ
The Economy 2.0 Macroeconomics @ CORE Econ
CORE Econ
Social Science
Empirical Science
Science
Related
Assumptions of Spare Capacity and Fixed Wages in the Multiplier Model
Example of Low Capacity Utilization Due to Insufficient Demand
Capacity Constrained
Delayed Investment Response to Rising Capacity Utilization
An economy's manufacturing sector is reported to be operating at a 95% utilization rate, while its service sector is at 70%. If there is a sudden, significant increase in economy-wide demand for both goods and services, what is the most probable immediate outcome?
Strategic Response to Increased Demand
Comparing Economic Responses to a Demand Shock
Evaluating a Fiscal Stimulus Policy
A manufacturing firm reports that it is operating at a 50% capacity utilization rate. This indicates that the firm's production is constrained by outdated technology and it must invest in new capital to increase output.
Match each economic scenario with the most appropriate description of its capacity utilization.
When a significant portion of an economy's productive resources, such as factories and equipment, are idle due to insufficient demand, the economy is described as having a low ____ rate.
An economy is recovering from a recession. Initially, there is widespread spare productive capacity. A government stimulus package then causes a strong and sustained increase in aggregate demand. Arrange the following events in the most likely chronological order.
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?
Learn After
An economy is experiencing a strong recovery. For the past three quarters, consumer demand has been robust, and the national capacity utilization rate has steadily climbed from 75% to 88%. Despite this, aggregate business investment in new plants and equipment has remained relatively flat. Which of the following best explains the discrepancy between the high capacity utilization and the flat business investment?
Evaluating a Corporate Expansion Decision
Explaining the Investment Lag
In a national economy, once the average capacity utilization rate surpasses a high threshold, such as 85%, business investment in new plants and equipment will immediately and proportionally increase in the following quarter.
Analyzing the Lag Between Economic Signals and Business Investment
An economy is emerging from a recession. Arrange the following events in the most likely chronological order to illustrate the typical process leading from economic recovery to an increase in productive capacity.
A sustained rise in demand often leads firms to consider expanding their production capacity. However, the decision to invest is complex and often delayed due to uncertainty about future demand and the significant time required for expansion. Match each corporate scenario with the most likely investment response.
Even when production facilities are operating near their maximum output, firms often hesitate to invest in new capacity. This delay occurs because the process of expansion takes considerable time, and businesses need to be confident that the high level of ______ will be sustained before committing to major capital expenditures.
Interpreting Economic Indicators for an Industry Sector
An industry has seen its average capacity utilization rise from 70% to 90% over the last six months due to a sudden, unexpected surge in consumer demand for its products. Given this situation, which of the following corporate strategies would be the most risky for a firm in this industry to pursue immediately?