Okun's Law

From Academic Kids

In economics, Okun's Law, named after economist Arthur Okun, describes a relationship between the change in the rate of unemployment and the difference between actual and potential real GDP. In the United States during the period since 1965 or so, Okun's Law can be stated as saying that for every one percentage point by which the actual unemployment rate exceeds the "natural" rate of unemployment, there is a 2 to 4 percent "GDP Gap". That is, unemployment above the inflation-threshold unemployment rate corresponds to real gross domestic product below potential output.

It is more accurately called "Okun's rule of thumb" since it is an empirical generalization rather than being clearly based on economic theory. The relationship varies depending on the country and time-period under consideration.Template:Econ-stub

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