Capacity Utilization Measures Current Manufacturing Output Against Potential Output

question 27

Multiple Choice

Capacity utilization measures current manufacturing output against potential output. Which of the following statements is correct?

• A)When capacity utilization is low, companies use their most productive and efficient plants and equipment.
• B)As capacity utilization increases, companies bring less efficient plants and equipment on line.
• C)When the capacity utilization rate moves above 80%, inflationary pressures may start to build in the economy.
• D)All of the above are true

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Definitions:

Laffer Curve

A theoretical representation of the relationship between tax rates and tax revenue, suggesting an optimal tax rate for maximizing revenue.

Supply-Side Economics

Main tenets: economic role of federal government is too large; high tax rates and government regulations hurt the incentives of individuals and business firms to produce goods and services.

Systematic Error

refers to a consistent, predictable error present in the results of measurements or experiments due to flaw in the measurement system.

Rational Expectations

A theory in economics suggesting that individuals make decisions based on their rational outlook, available information, and past experiences.