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lectur1-page6 - constantly running it to the limit Gas...

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Above is the industrial capacity utilization rate. A mouthful to be sure. This “vital sign” uses an 85% industrial capacity utilization rate as its “benchmark” Economists believe that rates above 85% tend to be inflationary. Rates above 85% tend to cause production costs to escalate as we are pushing our economic engines to the “red line.” Think of the engine in your motor vehicle. It has an rpm range that is most efficient in terms of the inputs that produce power, gas and air. If you have a tachometer on the dash board, you will notice a “red line.” Sure, you can rev that motor to the red line and above but how long with that motor last if you are that motor to the red line and above, but how long with that motor last if you are
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Unformatted text preview: constantly running it to the limit? Gas consumption starts to increase rapidly as greater demands are placed on that engine. What will happen to operating costs of that motor vehicle if you are constantly squeezing every horse power out of that engine? They are going to go up, not to mention all the speeding tickets you will acquire. Well a factory, a computer, a business has a “red line” as well. Machinery breaks down, people get tired, irritable, sick, etc. At the “red line”, productivity starts to decrease and costs begin to increase. So, 85% industrial capacity utilization is thought to be the “red line” for our economic engines. Can you point out the 90/91 recession and the 2001 recession in the data above? 6...
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