The utilization of productive capacity: capacity utilization refers to the amount of physical capital available to firms that is in use. In the short run, a firm's, industry's or economy's capital stock is considered fixed, as it often takes awhile to invest in additional capital equipment, especially when new office or factory space is required to increase output to meet growing demand. For the economy as a whole, the Fed becomes cautious as the capacity utilization rate approaches 84%. The Fed considers this to be the threshold at which inflationary pressures will build in some parts of the manufacturing sector.
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