Deep analysis Research Paper Example | Topics and Well Written Essays - 1000 words

Deep analysis - Research Paper Example The reverse is also true; meaning when the market demand slackens there will be a decline in capacity utilization. In the economic scene, capacity utilization is employed to track inflation pressures (Nelson 275). In United States, data on capacity utilization is released on monthly bases by the Federal Reserve Board. This helps in tracking the extent to which the country’s productive capacity is being utilized and also forecast likely growth or decline in various sectors. Capacity utilization is measured by deducting actual production from potential production. Capacity Utilization=Real actual output-Real potential Output The data released by the Federal Reserve Bank can be plotted in a graph to show historical developments in capacity utilization. Notably, capacity utilization is represented in percentages, 100% is considered a maximum level of production. Such a graph is represented in the next part; the data represented is from 1965 through to 2012 (Federal Bureau of Reser ve). Capacity Utilization in United States of America Year Question 3 One of the emergent findings is that the overall capacity utilization has declined over the years. In the 1960s capacity utilization averaged around 85 percent. ... In explaining whether these findings are to be expected it would be important to look at the general economic environment over the years. It is clear that in the 1960s, which was largely a postwar period, there was a massive growth in the economy. This massive growth was enabled by a growing demand for goods and services which prompted companies in various industries to increase their productive capacity. At the same time, companies sought to maximize on their productive capacity to meet the demand. The result was higher levels of capacity utilization. However, this scenario would falter with a general change in the economic environment. This is because the economic environment remains a major determinant of the levels of production. In times of great demand the production levels will rise and thence the capacity utilization of existent companies will also rise. Therefore, at times of slow economic growth, or recession in that case, the industries are performing below par and thence the capacity utilization is way below that of a thriving economy. Given this scenario, it is thus expected that the level of capacity utilization will falter every time there is a marked decline in economic growth. Looking at the plotted levels and matching this with the overall health of the economy, we are able to see a higher level in the 1960s. It is during this period that the United States experienced the longest period of uninterrupted period of economic expansion. At the time, the efficiency and production levels of the U.S improved markedly. However, these levels have since declined and the country hardly goes for two decades without a recession. This reality largely suggests that the findings would be