Economic Indicators and Past Budget Stances (Unit 4 Topic 2)  

Capacity utilisation tells us how intensively firms are using their available productive capacity — their plant, equipment, and workers — so a reading above its long-run average signals the economy is running hot with little spare capacity (a positive output gap and building inflation pressure), while a reading below signals idle resources and slack (a negative output gap).

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We can then determine about the actual output of our economy compared to our potential output. We can also now visualise output as it might appear on our production possibilities curve. 

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The long-run average capacity utilisation in the Australian economy sits at about 81%.

 

The interactive can overlay: 

• trimmed mean inflation - notice how inflation tends to peak after peak in capacity.

• unemployment - the gap between the unemployment rate to the NAIRU.