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Economics

Okun's Law and the Output Gap

Quick fact

Arthur Okun's original law stated that for every 1% increase in the unemployment rate above its natural level, a country's GDP tends to be about 2% below its potential. This 2-to-1 ratio has become a famous rule of thumb.

Why this is interesting

You've probably heard that when the economy grows, unemployment falls. But did you know there's a surprisingly precise rule that predicts just how much unemployment will drop?