Is It the Right Time to Set up Shop in France?

Is it the right time to set up shop in France?

Macroeconomics from any country will be complicated and France is no exception. There are various factors which will give the analyst an Idea as to how healthy a countries economy is. The first, and arguably the most important, factor is GDP. GDP, also known as gross domestic product, refers to the total output of a country at any one time. Below is a time series of the GDP of France from 1970 until 2008.

As you can see the French GDP seems to never be in the same place twice or, at least, has not held a steady course in the last 38 years. This is common when looking at GDP time series from different economies. It is clear that the business cycles for the last four decades shows that France has experienced many economic �booms’ and has also experienced many recessions. The booms can be explained by looking at certain macroeconomic models.

Above you will see a copy of the aggregate supply and demand model. I am using this as an example to show how the GDP can be affected. You will notice that the AD1 line has shifted right to AD2. This is an example of demand pull inflation. Demand pull inflation is caused by an increase in expenditure in the economy. The expenditure is made up of consumers spending on domestic products, investment, government spending and exports. When the expenditure rises the demand for products also rises pulling the aggregate demand line to the right. When expenditure decreases the line shifts to the left. This is linked very closely to Inflation. Below you will see a time series of the inflation in France between 1970 and 2008.

As well as Demand-pull inflation there is cost-push inflation. This works when costs rise. Instead of the demand curve moving this causes the supply curve to move left. Firms respond to this by raising there prices and with doing so they are passing the costs onto the consumer. Obviously this has not been such a problem in France in recent years. Inflation dropped significantly between 1982 and 1987 and has stayed low since.

The last important factor to consider is the unemployment rates. Below is the time series relating to the unemployment in France between 1970- 2008. From the time series below you can see that unemployment levels had been rising in France from 1970 until 1996 apart from a slump between 1988 and 1990. From 1996 until present the unemployment rates appear to have been dropping when compared to the 1994 and 1996 period. However, these unemployment figure are still very high. In 2007 approximately 9% of people were unemployed.

France is suffering from equilibrium unemployment. That is to say the unemployment is induced by certain individuals who are