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 monetary measure of the total market value of all the final goods and services produced and rendered in a specific time period by a country or countries. GDP is often used to measure the economic performanc ...

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 economist 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 (), commonly referred to as the Nobel Prize in Economics(), is an award in the field of economic sciences adminis ...

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 Empirical research, 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" s ...

. 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 is thus usually larger than the gap identified by Okun's Law, which suggests that economic policy should focus on optimizing investment in addition to realizing full employment. 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". Social statistics The term is used in a wide variety of social science, social sciences and statistical research conte ...

terms to reflect how much better a person's

standard of living Standard of living is the level of income, comforts and services available to an individual, community or society. A contributing factor to an individual's quality of life, standard of living is generally concerned with objective metrics outsid ...

would be in the absence of this gap.\

References

{{reflist Economic theories Gross domestic product 1995 in economic history Eponymous laws of economics