Economic paper

Sichong Ye 1477207 Econ 197

The economic consequence of government shutdown

The article Shutdown Will Cost Government $3 Billion of Projected 2019 GDP in The

Wall Street Journal explains the effects of the shutdown of a government operation that ended

recently. According to the article, the shutdown has various economic impacts such as an

increase in unemployment rates during the shutdown period. The primary purpose of this paper

is to discuss the economic growth of based on the government action to shut down some of its

operations form a specified period.

In the article, the author states that the partial government shutdown will cost the states

amount totaling to $ 3 billion. The cost will translate to 0.4 percentage decrease in annual gross

domestic product growth in the first quart during the current financial year (Ylan). During the

partial shutdown, most of the economic activities were dampened thus causing adverse economic

effects on the states. For example, throughout the shutdown period, approximately 38,000

workers were not contributing to a gross domestic product because they dampened economic

activities. As a result, there was a delay in federal spending especially on good and services

which subsequently led to a reduction in aggregate demand.

The shutdown was marred with some negative implications on economic growth because

some small business operators could not obtain federal permits to enable them to run their

business legally ("CBO: Shutdown Will Cost Government $3 Billion of Projected 2019 GDP.”).

Consequently, such factors led to most firms and private investors postponing their investments

decisions to future dates when economic status will be favorable for investment activities. The

latter is likely to cause financial crisis because if investor delays their investment, there will be

less economic activities in different parts of the states. As a result, the Gross Domestic Product

will reduce hence leading to the financial crisis.

Sichong Ye 1477207 Econ 197

According to CBO, the shutdown which lasted for approximately 35 days reduced the

fourth quarter gross domestic product by roughly $ 3 which translates to 0.1 % decrease in the

state's GDP. As a result, CBO estimated that the effect would lead to a reduction in the real gross

domestic product by $ 8 in the first quarter of the preceding years (Stewart). The shutdown will

significantly affect economic growth of the state. For instance, before the closedown, the agency

projected a gross economic growth of 2.3 % in 2019, but this will not be possible because the

shutdown affected many sectors of the economy.

Although the shutdown temporarily halts government economic activities, the power as

mentioned above failure have also imposed substantial effects on the economic growth. For

example, the other cessation was characterized with both direct and indirect cost which included

loss of output by the federal employees as well as weaker economic growth.

Another significant shutdown which exceedingly affected the state's economy took place

in 1996. During which there were various economic effects including costing the government

amount totaling to $ 1.4 billion (Kate). Typically, government shutdown causes an adverse

impact on the economy whenever they happen. Unemployment is one of the main effects which

result in case of temporary termination of government activities (Zuo). Also, the government is

likely to have balance deficits because it will not be able to generate enough revenue to fund all

its spending.

Additionally, the CBO projected that due to uncertainties caused during the government

shutdown, there is the possibility of federal budget deficits because a large number of employees

will be offloaded hence reducing government revenues. As a result, the CBO projected that due

to such uncertainties, the federal government would have an average deficit of $ 1.2 trillion for

the next decade ("CBO: Shutdown Will Cost Government $3 Billion of Projected 2019 GDP.”).

Sichong Ye 1477207 Econ 197 This will translate to approximately 4.4 % of the state’s real gross domestic product. Therefore,

if such shutdowns persist over the years, the federal government will be losing a significant

amount of money annually. Consequently, the rate of unemployment will increase which will

impressively affect the state's gross domestic product. Similarly, the federal government debts

will; increase because the government will go for external funding to fund its spending.

Conclusively, the recent temporary government shutdowns have much affected the

government. The gross domestic products have been reducing whenever there is such

discontinuity because many employees are affected thus decreasing the federal government

source of revenues. Also, shutdown leads to budgetary deficits thus, forcing the federal

government to go for external funding.

、

Sichong Ye 1477207 Econ 197

A measure of economic growth and unemployment

Year GDP Growth Unemployment Rate Business Cycle Phase 2007 1.8% 5.0%Dec peak. 2008 -0.1% 7.3%Contraction. Financial Crisis. 2009 -2.5% 9.9%June trough. 2010 2.6% 9.3%Obamacare. Dodd-Frank. 2011 1.6% 8.5%Expansion. 2012 2.2% 7.8%Expansion. 2013 1.8% 6.7%Expansion. 2014 2.5% 5.6%Expansion. 2015 2.9% 5.0% 2016 1.6% 4.7%

Strong dollar. Low oil prices. Fed raised the rate.

2017 2.2% 4.1%Weakening dollar boosted growth. 2018 2.3 % 3.9%rate

The table is used to show a measure of domestic economic growth and unemployment

rate for the last ten years.

Works Cited

Sichong Ye 1477207 Econ 197 Davidson, Kate. "CBO: Shutdown Will Cost Government $3 Billion of Projected 2019

GDP." WSJ, 28 Jan. 2019

Mui, Ylan. "The Shutdown Cost the Economy $11 Billion – Including a Permanent $3 Billion

Loss, Government Says." CNBC, 28 Jan. 2019.

Stewart, Emily. "The Shutdown Cost the US Economy $3 Billion That Isn't Coming Back." Vox,

28 Jan. 2019.

Jiaxin Zuo. “CBO: Shutdown Will Cost Government $3 Billion of Projected 2019 GDP”

Economic Rhetoric: Using Economic Theory and Empirical Evidence in Arguing Policy.

UC Santa Cruz. Santa Cruz. 30 January 2019. Lecture.