Lucas Wedge

AAA

DEFINITION of 'Lucas Wedge'

The aggregate amount of loss in output for an economy that is the result of a slowdown in the growth rate of the real gross domestic product (GDP). The Lucas wedge is a visual representation of where a given economy would be in terms of economic output if there hadn't been a slowdown.

INVESTOPEDIA EXPLAINS 'Lucas Wedge'

The Lucas wedge represents the costs to society because of the inefficiency in the market. This deadweight loss is a burden on society and often cannot be avoided because of economic conditions or government policy. Many economics will calculate the Lucas wedge by analyzing the difference between potential GDP and the actual figures.

RELATED TERMS
  1. Real Gross Domestic Product (GDP)

    An inflation-adjusted measure that reflects the value of all ...
  2. Soft Patch

    A period of economic slowdown amid a larger trend of economic ...
  3. Deadweight Loss

    The costs to society created by market inefficiency. Mainly used ...
  4. Economic Growth

    An increase in the capacity of an economy to produce goods and ...
  5. Labor Productivity

    A measurement of economic growth of a country. Labor productivity ...
  6. Global Recession

    An extended period of economic decline around the world. The ...
RELATED FAQS
  1. What portion of the global economy is comprised of the telecommunications sector?

    With global gross domestic product, or GDP, calculated at approximately $77 trillion for 2014, and the telecommunications ... Read Full Answer >>
  2. What portion of the global economy is represented by the retail sector?

    Global gross domestic product, or GDP, in 2014 was estimated to be $77.3 trillion in 2014 dollars. The retail industry generated ... Read Full Answer >>
  3. How do you calculate GDP with the income approach?

    The income approach to measuring gross domestic product (GDP) is based on the accounting reality that all expenditures in ... Read Full Answer >>
  4. How do you calculate GDP with the expenditures approach?

    To calculate gross domestic product, or GDP, with the expenditures approach, add up the sums of all consumer spending, government ... Read Full Answer >>
  5. What is the correlation between money supply and GDP?

    It is difficult to measure the money supply, but most economists use the Federal Reserve's aggregates known as M1 and M2. ... Read Full Answer >>
  6. While closely related, how do gross domestic product (GDP) and gross national income ...

    Gross domestic product, or GDP, and gross national income, or GNI, are the two most important economic indicators that measure ... Read Full Answer >>
Related Articles
  1. Economics

    Economics Basics

    Learn economics principles such as the relationship of supply and demand, elasticity, utility, and more!
  2. Options & Futures

    Explaining The World Through Macroeconomic Analysis

    From unemployment and inflation to government policy, learn what macroeconomics measures and how it affects everyone.
  3. Retirement

    Economic Indicators To Know

    The economy has a large impact on the market. Learn how to interpret the most important reports.
  4. Economics

    Will the Selloff in China Hurt the Global Economy?

    Though China is the world’s second largest economy, its volatility in the stock market is unlikely to have an impact on the global or Chinese economy.
  5. Investing

    Does Greece Pose A Threat To Global Markets?

    In latest news from Greece: voters delivered a resounding “No” vote in Sunday’s referendum, strongly rejecting the previous offer by Greece’s creditors.
  6. Economics

    The Most Likely Outcome For Greece

    After more than five years of a Greek drama, most of us have become fatigued with hearing about Greece’s debt problems, the one issue that won’t go away.
  7. Economics

    What The Fed Needs To Consider Before A Rate Hike

    Everyone, from colleagues to clients, has some interpretation of when and if the Fed should raise short-term rates and start to normalize monetary policy.
  8. Economics

    Google Is Now Richer Than Over 100 Countries

    Find out where Google ranks among the wealthiest nations of the world and which countries report GDP figures below the tech giant's annual revenue.
  9. Economics

    Is The Yuan The New Greenback?

    China is increasingly top of mind for investors. While bulls see an opportunity in a massive equity rally, bears are focused on a slowing economy.
  10. Stock Analysis

    Is Now the Time to Bet on Vacation Spending?

    As Americans embark on summer trips, investors can benefit by adding exposure to the travel and leisure sector.

You May Also Like

Hot Definitions
  1. Investopedia

    One of the best-known sources of financial information on the internet. Investopedia is a resource for investors, consumers ...
  2. Unfair Claims Practice

    The improper avoidance of a claim by an insurer or an attempt to reduce the size of the claim. By engaging in unfair claims ...
  3. Killer Bees

    An individual or firm that helps a company fend off a takeover attempt. A killer bee uses defensive strategies to keep an ...
  4. Sin Tax

    A state-sponsored tax that is added to products or services that are seen as vices, such as alcohol, tobacco and gambling. ...
  5. Grandfathered Activities

    Nonbank activities, some of which would normally not be permissible for bank holding companies and foreign banks in the United ...
  6. Touchline

    The highest price that a buyer of a particular security is willing to pay and the lowest price at which a seller is willing ...
Trading Center
×

You are using adblocking software

Want access to all of Investopedia? Add us to your “whitelist”
so you'll never miss a feature!