Question

4. Rank the performance of metal producers, electricity suppliers, and restaurants in each of the
following situations:
(a) Production growth is accelerating and capacity utilization has risen to high level during
early stage of economic expansion.
(b) The economy has just started a recession.

Answer 1

A.When production growth is accelerating, interest rates are declining and capacity utilization is at its maximal level, the Metal producers will be best performing, Electricity which is an essential part of production will fare good. Although restaurants come in all shape and sizes but they are mostly considered a comfort or luxury. In the high production period, their growth will remain fairly flat and start to increase once the highest levels of boom are attained.

B.When economy starts recession, production falls and there is gloom about the future production prospects. In such scenario, only utilities will be preferred by the consumer and the sectors like Transportation, Energy, Food staples will perform better than sectors like consumer cyclicals, industrial goods, financial markets. So, Metal producers will be hit worst and so does Restaurants. Electricity supply being an essential sector which is used by households too will not be that worse off.