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As a result of air pollution, sometimes the government shuts the schools and universities. What if they declare the entire day (and not just for schools) is off? I don't think we can say "They declared Saturday a holiday" since "holiday" has a positive connotation implying that people were given the chance to take a vacation. Is there a general term for that?

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News reports typically say something like the government declares a public health emergency and orders certain businesses and workplaces to close. "public health emergency" is a rather vague phrase that doesn't necessarily mean closing businesses or schools but it might be as good as you get. Although in future, as this happens more often, there may be a more succinct form of words.

New York Times, 2019: https://www.nytimes.com/2019/11/01/world/asia/delhi-pollution-health-emergency.html

RFI, 2019: http://www.rfi.fr/en/asia/20191103-india-declares-air-emergency-delhi-pollution-smog-10-million-vehicles-crop-burning

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