What it is:
Named after economist Arthur Okun, Okun's law states that for every 1% increase in the employment rate, gross domestic product increases 3%.
How it works/Example:
Why it matters:
Okun's law reinforces the notion that a country's output depends on labor. It is also a way to measure the effectiveness of monetary policy. Although the law only applies in the United States, the concept applies in all economies (that is, when more people have jobs, the is stimulated). Accordingly, a 1% change in employment may result in a different degree of increased output in other countries.