Micro and Macro: The Economic Divide

Chosen country is FRANCE. all the graphs and information should be about before and after the World economical crisis (2008). And essay and all the calculations and solutions should be based on the previous indicates and after the crisis.

Running head: MACROECONOMICS
Macroeconomics
Name of the Student
Name of the University
Course ID

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Introduction
One significant economic event in the history of world economy is economic crisis
started in 2008. The economic crisis of 2007-08 caused due to depreciation in the market of
subprime mortgage of United State. Impact of the crisis was not limited to United State only
rather it spread over all other economies across the world (Hagiwara 2019). The essay discusses
impact the economic crisis of 2008 in France considering its impact on different macroeconomic
indicators (GDP, unemployment and inflation). Besides discussing impact of economic crisis on
these indicators policy recommendations are made in reference to circular flow model.
Trend in macroeconomic indicators
Gross Domestic Product
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
2200
2300
2400
2500
2600
2700
2800
2900
3000
Gross Domestic Product
Year
GDP (in billion)
Figure 1: Trend in GDP of France (Pre and Post crisis period)
(Source: Data.worldbank.org. 2020)

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Pre-crisis (1999-2008) Post-crisis (2009-2018)
2300.00
2350.00
2400.00
2450.00
2500.00
2550.00
2600.00
2650.00
2700.00
2750.00
2800.00
2475.41
2751.28
Average GDP
Period
GDP in Billion dollar
Figure 2: Comparison of average GDP of France (Pre and Post crisis period)
Figure 1 shows trend in real GDP of France from 2001 to 2008. During the pre-crisis
period GDP of France increased steadily from 2245.421 billion dollars in 1999 to 2668.76 billion
dollars in 2008. Because of the economic crisis GDP declined to 2592.08 billion dollars. GDP
however soon recovered and then began to increase steadily.
Inflation
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
0.00
0.50
1.00
1.50
2.00
2.50
3.00
Inflation
Year
Rate of Inflation
Figure 3: Trend in inflation of France (Pre and Post crisis period)
(Source: Data.worldbank.org. 2020)

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Pre-crisis (1999-2008) Post-crisis (2009-2018)
0.00
0.20
0.40
0.60
0.80
1.00
1.20
1.40
1.60
1.80
2.00 1.77
1.02
Average Inflation Rate
Period
Rate of Inflation
Figure 4: Comparison on average inflation in France (Pre and Post crisis period)
Inflation rate of France shows a fluctuating trend. Inflation rate was around 2 percent
during the pre-crisis period (1999-2008). Price level dropped sharply immediately after the crisis
with rate of inflation being 0.09 percent in 2009. Price level though gradually recovered it again
dropped to the lowest level of 0.04 percent in 2015. The accounted inflation rate in 2018 was
1.85 percent.
Unemployment
1999
2001
2003
2005
2007
2009
2011
2013
2015
2017
6.5
8.5
10.5
12.5
Unemployment
Year
Rate of
Unemployment
Figure 5: Trend in Unemployment of France (Pre and Post crisis period)
(Source: Data.worldbank.org. 2020)

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As shown from the graph trend unemployment rate is relatively higher in France. In the
pre-crisis period, unemployment rate though followed a gradual declining trend it started to rose
sharply prior to the crisis. The unemployment rate reached to the highest level of 10.36 percent
in 2015. Since then it began to fall and became 9.06 percent in 2018.
Pre-crisis (1999-2008) Post-crisis (2009-2018)
8.4
8.6
8.8
9.0
9.2
9.4
9.6
8.84
9.49
Average Unemployment Rate
Period
Rate of Unemployment
Figure 6: Comparison of average unemployment in France (Pre and Post crisis period)
GDP growth rate
Table 1: Calculation of GDP growth rate of France

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1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
-4.00%
-3.00%
-2.00%
-1.00%
0.00%
1.00%
2.00%
3.00%
4.00%
5.00%
GDP growth rate
Year
Growth rate of GDP (%)
Figure 7: Trend in GDP growth rate of France (Pre and Post crisis period)
Pre-crisis (1999-2008) Post-crisis (2009-2018)
0.00%
0.50%
1.00%
1.50%
2.00%
2.50%
2.09%
0.93%
Average Growth Rate
Period
Rate of Growth (%)
Figure 8: Comparison of average GDP growth rate of France (Pre and Post crisis period)
GDP growth rate of France in 2001 was 1.98%. After two consecutive year of decline in
GDP growth, economy grew at a rate of 2.83% in 2004. The average growth rate remained
around 2 percent till 2007. Economic growth was as low as 0.25 percent in 2008. Growth

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became negative of -2.87% in 2009. Recovery in GDP growth was very slow and it was not until
2017 that growth reached to 2.26 percent.
Discussion on GDP growth trend
The fluctuating trend in GDP growth rate of France was related to contextual domestic
and global economic factors. The fall in GDP growth of France in 2001 was not due to outbreak
of economic crisis rather it was due to the adaptation of new currency in the economy. During
this time Euro settled in the economy led to an inflation raising thought threat among the
consumers that they would lose money (D'Agostino et al. 2019). The resulted change in
consumption behavior of household and lower demand reduced GDP growth during 2001 to
2003. Next, the decline in GDP growth that started in 2008 was due to the hit of financial crisis.
The economic crisis took the form of financial crisis causing wealth of the State to go down with
an adverse effect on stock exchange. This reduced way for firms to invest. The economy suffered
from limited availability of credit as banks went bankrupt and required bail out by State (Levy
2017). The financial crisis impacted GDP growth by affecting different components of GDP.
First, because of fluctuation in housing prices which caused fluctuation in the wealth level led to
a decline in consumption expenditure. Consumption further declined because of a decline in
household income caused by higher unemployment due to collapse of many companies (Romer
and Romer 2017). The second component of GDP is investment which is measured by Gross
fixed capital formation. Because of the financial crisis investment fluctuated significantly. The
GFCF declined causing further contraction of economic growth. Another component of GDP
affected by economic crisis was the net export. Changes in inventory and export shrunk due to
fluctuation in different companies’ activities.

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Figure 9: Aggregate demand and Aggregate supply model
The above model of AD-AS can be used to explain the impact of economic crisis on
economic growth. Because of a decline in consumption spending, investment spending and trade
balance aggregate demand contracts causing a decline in GDP and price level (Goodwin et al.
2015).
Hypothesis of government intervention
Figure 10: Circular flow model with government sector
(Source: Heijdra 2017)

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During economic downturn government should support the economy by taking
expansionary policy. In order to stimulate economic activities government either lowers tax rate
or increases expenditure (Heijdra 2017). The impact of such policy expansion can be understood
from the circular flow of income and output among different sector and economic agent.
Tax
Decrease in tax to household → Increase in disposable income →Increase in consumption
expenditure →Product market→ Revenue of firm→ Cost of resources →Resource market →
Money income to household → Increased demand.
Expenditure
Increase in government expenditure → Product market → Revenue of firm→ Cost of resources
→Resource market → Money income to household → Increases demand.
The policy to increase government spending or taxes thus flow from household to firm through
product market and then again come back to household as factor income through the resource
market.
Figure 11: Impact of government policy intervention (expansionary policy)

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Government intervention through expansionary policy measures increases aggregate
demand shifting the aggregate demand curve outward. As a result of such policy GDP and price
level increases (Coppock and Mateer 2017). With increase in aggregate output employment
opportunities expand causing unemployment rate to fall.
Policy recommendation
Economic growth of France faced significant downturn during the economic crisis.
Policies therefore should be taken to foster economic growth. Firstly, for boosting GDP growth
government should take structural reforms. Focus in this regard should be given on boosting
innovation and eliminating obstacles to expansion of businesses. Secondly, because of the
economic crisis French unemployment increased significantly. Government in this regard should
take labor market reform in terms of increasing employment opportunities. Thirdly, to recover
the price level monetary policy expansion through cut in interest rate should be the focus of
government.
Conclusion
The economic crisis of France which started in 2008 adversely affected GDP and
different other macroeconomic indicators. There is considerable decline in economic growth
followed by an increase in unemployment and fall in price level or inflation.

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References
Coppock, L. and Mateer, D., 2017. Principles of macroeconomics. WW Norton.
D'Agostino, A., Gagliardi, F., Giusti, C. and Potsi, A., 2019. Investigating the impact of the
economic crisis on children's wellbeing in four European countries. Social science research, 84,
p.102322.
Data.worldbank.org. 2020. France | Data. [online] Available at:
https://data.worldbank.org/country/france [Accessed 19 Feb. 2020].
Goodwin, N., Harris, J.M., Nelson, J.A., Roach, B. and Torras, M., 2015. Macroeconomics in
context. Routledge.
Hagiwara, S., 2019. Why Did the World Economic Crisis of 2008-2009 End in the Great
Recession? A Critical Comparison of the Great Depression and the Great Recession. World
Review of Political Economy, 10(1), pp.24-39.
Heijdra, B.J., 2017. Foundations of modern macroeconomics. Oxford university press.
Levy, J.D., 2017. The return of the state? France’s response to the financial and economic
crisis. Comparative European Politics, 15(4), pp.604-627.
Romer, C.D. and Romer, D.H., 2017. New evidence on the aftermath of financial crises in
advanced countries. American Economic Review, 107(10), pp.3072-3118.