CYCLICAL FACTOR UTILIZATION

We introduce procyclical labor and capital utilization, as well as cos ts of rapidly increasing employment, into a business-cycle model. Plau sible variations in factor utilization enable us to explain observed v ariability of real GNP with considerably smaller economy-wide disturba nces. The costs of adjustment create very interesting and realistic le ad and lag relationships: employment does not peak until a full quarte r after output; workweeks, effort, capital utilization, and productivi ty all sharply lead the business cycle.