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. Soft Patch

    A period of economic slowdown amid a larger trend of economic ...
  2. Real Gross Domestic Product (GDP)

    An inflation-adjusted measure that reflects the value of all ...
  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. Global Recession

    An extended period of economic decline around the world. The ...
  6. Debt-To-GDP Ratio

    The ratio of a country's national debt to its gross domestic ...
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. Personal Finance

    What is the difference between Keynesian economics and monetarist economics?

    Discover how the debate in macroeconomics between Keynesian economics and monetarist economics always comes down to proving which theory is better.
  5. Economics

    Is the consumer price index (CPI) the best measure of inflation?

    Discover how the CPI is one of the most used indexes to measure inflation, but due to its limitations, the PPI and GDP deflator are also required.
  6. Economics

    Is a current account deficit good or bad for the economy?

    Take a deeper look at the nature of a country's current account balance, and see why trade deficits are neither good nor bad for a national economy.
  7. Economics

    Why does inflation increase with GDP growth?

    Examine the relationship between inflation and GDP, and why GDP growth leads to higher prices. Explore the effects of uncontrolled inflation and GDP growth.
  8. Economics

    How did World War II impact European GDP?

    Understand the effect of World War II on the European gross domestic product and what foreign and domestic factors influenced this change.
  9. Economics

    What's the GNP?

    Gross national product (GNP) is one of many metrics economists use to measure a country’s economic output. For any one year, GNP equals the market value of all the goods and services produced ...
  10. Personal Finance

    How does Halloween affect the economy?

    Discover some of the differing ways in which economists evaluate the impact of Halloween on the American economy and whether it is a net benefit.

You May Also Like

Hot Definitions
  1. Treasury Bond - T-Bond

    A marketable, fixed-interest U.S. government debt security with a maturity of more than 10 years. Treasury bonds make interest ...
  2. Weight Of Ice, Snow Or Sleet Insurance

    Financial protection against damage caused to property by winter weather specifically, damage caused if a roof caves in because ...
  3. Weather Insurance

    A type of protection against a financial loss that may be incurred because of rain, snow, storms, wind, fog, undesirable ...
  4. Portfolio Turnover

    A measure of how frequently assets within a fund are bought and sold by the managers. Portfolio turnover is calculated by ...
  5. Commercial Paper

    An unsecured, short-term debt instrument issued by a corporation, typically for the financing of accounts receivable, inventories ...
  6. Federal Funds Rate

    The interest rate at which a depository institution lends funds maintained at the Federal Reserve to another depository institution ...
Trading Center