Question 1 of 1
Step 1
In the chapter, we discussed how intertemporal substitution can amplify a boom by causing people to work more and by causing more people to work (while the reverse is true in a recession).
Capital is also subject to intertemporal substitution. For example, it’s possible to run a factory at close to capacity in one period, while putting off maintenance to a later period.
How do you think capacity utilization varies across the business cycle? Is capacity utilization procyclical (meaning it varies positively with GDP and rises when GDP rises) or countercyclical (varies negatively with GDP and rises when GDP falls)? Choose one, and explain your answer in the space provided.
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