4. The Federal Reserve publishes data on capacity utilization by US industry.

a)What is the normal range for capacity utilization? How does the current rate compare to this
range?

The range is from 66.6% to 85.2%, but the average over that period is 79.6%. The current rate
(June 2021) of 75.4% is within this range but is 4.2 percentage points lower than the historical
average of 79.6%.

b) Productive capacity never seems to be 100% employed. Does this mean that capital is being
wasted? Why or why not?

No, it does not mean that capital is being wasted. Demand fluctuates, so it may not be in a
company’s best interest to utilize 100% of their resources, as doing so would increase costs. If
demand for the product is not sufficiently high, then those increased costs would negatively
impact profits.

There was saying in my previous company.

It is worse to lack supply when there is demand in the market than to make it without selling it.

c) The Federal Reserve is the nation’s central bank. Why is the Fed (rather than, say, the
Commerce Department) publishing data on capacity utilization?
The Fed’s capacity utilization statistics are available at
http://www.federalreserve.gov/releases/G17/Current/

Capacity utilization can be used as a measurement of the overall health of the economy (capacity
utilization is high during economic expansion, and lower during a recession). Since the Fed is
responsible for controlling monetary policy, it is important that they can monitor metrics like
capacity utilization so that they can react to them as necessary.

Also, the Fed has the responsibility for maintaining stable economic conditions with inflation
and employment. Adjusting the interest rate is a main way to control optimal inflation and
unemployment rates when the economy suffers from internal and external impacts.