What next for France as riots rattle markets? Three questions facing investors ahead of more protests
Real-world example for IB, A-Level, AP and IGCSE Economics essays: Government debt and deficits, Financial markets and banks, Economic growth and the business cycle
What happened
Unrest in France pushed government bond yields to a 24-year high, as investors assess budget, growth and sector risks with more protests expected.
The economics
Rising bond yields mean the government pays more to borrow, which strains the budget and may force spending cuts or tax rises that weigh on growth. Investors' concerns about political instability and fiscal sustainability show up quickly in bond markets as a higher risk premium.
Figures to quote
- bond yields to a 24-year high
Evaluation
Higher yields may reflect fiscal risk but can also be driven by global interest-rate conditions, so not all of the rise can be attributed to domestic unrest; short-run market volatility should also be distinguished from long-run debt sustainability.
Practice question
Using the example of French unrest pushing bond yields to a 24-year high, analyse how political instability affects the cost of financing government debt and the room for fiscal policy.
Where it fits in the syllabus
- Government debt and deficits: Spending above tax revenue creates a deficit; deficits add up to debt, which can raise interest rates or crowd out private investment.
- Financial markets and banks: How banks, bond and stock markets fund the economy, and what swings in asset prices do.
- Economic growth and the business cycle: Long-run growth in real GDP and the short-run swings between expansion and recession, when output falls below potential.
- IB Economics: Fiscal and Monetary Policy, Measuring Economic Activity, Aggregate Demand and Supply
- A-Level Economics: Economic Policy, Macroeconomic Objectives, Aggregate Demand and Supply
- AP Macroeconomics: Long-Run Consequences of Stabilisation Policies, Financial Sector, Economic Indicators and Business Cycle, National Income and Price Determination
- IGCSE Economics: Government Macroeconomic Policy, Macroeconomic Objectives