The Lucas wedge is an

economic An economy is an area of the Production (economics), production, Distribution (economics), distribution and trade, as well as Consumption (economics), consumption of Goods (economics), goods and Service (economics), services. In general, it is ...

measure of how much higher the

gross domestic product Gross domestic product (GDP) is a money, monetary Measurement in economics, measure of the market value of all the final goods and services produced and sold (not resold) in a specific time period by countries. Due to its complex and subjec ...

would have been if it grew as fast as it should have. It shows the loss from deadweight caused by poor or inefficient economic policy choices. A Lucas wedge was named after Robert E. Lucas Jr. an American who won the 1995

Nobel Memorial Prize in Economic Sciences The Nobel Memorial Prize in Economic Sciences, officially the Sveriges Riksbank Prize in Economic Sciences in Memory of Alfred Nobel ( sv, Sveriges riksbanks pris i ekonomisk vetenskap till Alfred Nobels minne), is an economics award administered ...

for his research on rational expectations. The Lucas wedge is not the same as the

Okun's Law In economics, Okun's law is an empirically observed relationship between unemployment and losses in a country's production. It is named after Arthur Melvin Okun, who first proposed the relationship in 1962. The "gap version" states that for every ...

. While they are similar and often confused, the gap from Okun's Law measures the difference over a period of time between the actual GDP and the GDP that would have been realized at full employment. Over time the Lucas wedge compounds and increases and so it is usually larger than the gap from Okun's Law. This shows that a real goal of economic policy should be more than just realizing full employment but should also be in investments in productivity which would reduce the Lucas wedge. The Lucas wedge is sometimes expressed in

per capita ''Per capita'' is a Latin phrase literally meaning "by heads" or "for each head", and idiomatically used to mean "per person". The term is used in a wide variety of social sciences and statistical research contexts, including government statistic ...

to reflect how much better a person's

standard of living Standard of living is the level of income, comforts and services available, generally applied to a society or location, rather than to an individual. Standard of living is relevant because it is considered to contribute to an individual's quality ...

would be in the absence of this gap.

References

{{reflist Economic theories Gross domestic product 1995 in economics Economics laws