The model predicts that with a positive shock to technology the capital utilization rate, , will
A)fall as GDP falls.
B)fall as GDP rises.
C)rise as GDP rises.
D)rise as GDP falls.

Question

The model predicts that with a positive shock to technology the capital utilization rate,  , will
A)fall as GDP falls. 
B)fall as GDP rises. 
C)rise as GDP rises. 
D)rise as GDP falls.

Quizplus · Accepted Answer

A positive shock to technology increases productivity, which leads to a rise in GDP. As output increases, the demand for capital increases as well, leading to a rise in the capital utilization rate. Therefore, the capital utilization rate will rise as GDP rises.

The Model Predicts That with a Positive Shock to Technology