In this case, Okun’s law says that GDP would fall by 1 percent, indicating that
the economy is in a recession.
Okun’s law is a reminder that the forces that govern the short-run business
cycle are very different from those that shape long-run economic growth. As we
saw in Chapters 7 and 8, long-run growth in GDP is determined primarily by
technological progress. The long-run trend leading to higher standards of living
from generation to generation is not associated with any long-run trend in the
rate of unemployment. By contrast, short-run movements in GDP are highly