What is Government Shutdown?

3044 reads · Last updated: December 5, 2024

Government shutdown refers to the inability of the government to pass a budget bill or a resolution for extension, resulting in government departments being unable to receive appropriations and thus unable to operate normally. Government shutdowns usually lead to the suspension of government services, including defense, food inspection, taxation, customs, public transportation, and other departments. Government shutdowns can have a negative impact on the economy and the market.

Definition

A government shutdown occurs when the government fails to pass a budget bill or a continuing resolution, resulting in the inability of government departments to receive funding and operate normally. This typically leads to the suspension of government services, including defense, food inspection, taxation, customs, and public transportation. Government shutdowns usually have a negative impact on the economy and markets.

Origin

The concept of a government shutdown originated in the United States, first appearing in 1980. At that time, a legal opinion from the U.S. Department of Justice stated that the government could not continue operations without budget authorization. This concept was first applied in 1981, leading to the closure of some government departments.

Categories and Features

Government shutdowns can be categorized into partial and full shutdowns. A partial shutdown affects only some government departments, while a full shutdown means almost all government departments cannot operate. Features of a government shutdown include interruption of government services, unpaid leave for employees, and negative impacts on economic activity.

Case Studies

In 2013, the U.S. government experienced a 16-day shutdown due to Congress's failure to agree on a budget. This shutdown led to about 800,000 federal employees being furloughed without pay, closure of national parks and museums, and an estimated economic loss of billions of dollars. Another example is the 2018-2019 U.S. government shutdown, which lasted 35 days, the longest in history. This shutdown was primarily due to issues over border wall funding, affecting the operation of multiple government departments.

Common Issues

Common issues investors face during a government shutdown include increased market volatility, decreased investment confidence, and a slowdown in short-term economic activity. A common misconception is that a government shutdown leads to a complete halt of all government functions; in reality, essential services like defense and healthcare typically continue to operate.

Suggested for You

Refresh
buzzwords icon
Lindahl Equilibrium
A Lindahl equilibrium is a state of equilibrium in a market for public goods. As with a competitive market equilibrium, the supply and demand for a particular public good are balanced. So are the cost and revenue required to produce the good.The equilibrium is achieved when people share their preferences for particular public goods and pay for them in amounts that are based on their preferences and match their demand.Public goods refer to products and services that are provided to all by a government and funded by citizens' taxes. Clean drinking water, city parks, interstate and intrastate infrastructures, education, and national security are examples of public goods.A Lindahl equilibrium requires the implementation of an effective Lindahl tax, first proposed by the Swedish economist Erik Lindahl.
5 K learned

Lindahl Equilibrium

A Lindahl equilibrium is a state of equilibrium in a market for public goods. As with a competitive market equilibrium, the supply and demand for a particular public good are balanced. So are the cost and revenue required to produce the good.The equilibrium is achieved when people share their preferences for particular public goods and pay for them in amounts that are based on their preferences and match their demand.Public goods refer to products and services that are provided to all by a government and funded by citizens' taxes. Clean drinking water, city parks, interstate and intrastate infrastructures, education, and national security are examples of public goods.A Lindahl equilibrium requires the implementation of an effective Lindahl tax, first proposed by the Swedish economist Erik Lindahl.

buzzwords icon
Labor Productivity
Labor productivity measures the hourly output of a country's economy. Specifically, it charts the amount of real gross domestic product (GDP) produced by an hour of labor. Growth in labor productivity depends on three main factors: saving and investment in physical capital, new technology, and human capital.
2 K learned

Labor Productivity

Labor productivity measures the hourly output of a country's economy. Specifically, it charts the amount of real gross domestic product (GDP) produced by an hour of labor. Growth in labor productivity depends on three main factors: saving and investment in physical capital, new technology, and human capital.

buzzwords icon
Expansionary Policy
Expansionary policy is a form of macroeconomic policy that seeks to encourage economic growth by increasing aggregate demand. It can consist of either monetary policy or fiscal policy, or a combination of the two. It is part of the general policy prescription of Keynesian economics to be used during economic slowdowns and recessions in order to moderate the downside of economic cycles. Expansionary policy is also known as loose policy.
1 K learned

Expansionary Policy

Expansionary policy is a form of macroeconomic policy that seeks to encourage economic growth by increasing aggregate demand. It can consist of either monetary policy or fiscal policy, or a combination of the two. It is part of the general policy prescription of Keynesian economics to be used during economic slowdowns and recessions in order to moderate the downside of economic cycles. Expansionary policy is also known as loose policy.

buzzwords icon
Disposable Income
Disposable income is the amount of money that an individual or household has to spend or save after federal, state, and local taxes and other mandatory charges are deducted. Economists closely monitor disposable personal income as a key indicator of the strength of the economy. Also known as disposable personal income or net income, It includes both necessary spending on essentials like food and rent and discretionary spending on leisure and luxury items.
1 K learned

Disposable Income

Disposable income is the amount of money that an individual or household has to spend or save after federal, state, and local taxes and other mandatory charges are deducted. Economists closely monitor disposable personal income as a key indicator of the strength of the economy. Also known as disposable personal income or net income, It includes both necessary spending on essentials like food and rent and discretionary spending on leisure and luxury items.

buzzwords icon
Net Foreign Assets
Net foreign assets (NFA) determine whether a country is a creditor or debtor nation by measuring the difference in its external assets and liabilities. NFA refer to the value of overseas assets owned by a nation, minus the value of its domestic assets that are owned by foreigners, adjusted for changes in valuation and exchange rates.A nation's NFA position is also defined as the cumulative change in its current account, which is the sum of the balance of trade, net income over time, and net current transfers over time.
1 K learned

Net Foreign Assets

Net foreign assets (NFA) determine whether a country is a creditor or debtor nation by measuring the difference in its external assets and liabilities. NFA refer to the value of overseas assets owned by a nation, minus the value of its domestic assets that are owned by foreigners, adjusted for changes in valuation and exchange rates.A nation's NFA position is also defined as the cumulative change in its current account, which is the sum of the balance of trade, net income over time, and net current transfers over time.

© 2026 Longbridge｜Disclaimer