Economics of Pandemics

Question 1: 40 points, 200-250 words
Consider a Susceptible-Infected-Recovered (SIR)-model discussed in the lectures. Briefly
explain the terms the ‘Basic Reproduction Number’, R0, and the ‘Effective Reproduction
Number, R(t). What useful information do they provide about the pandemic? Consider
an economy under a pandemic where there remains a very large susceptible population,
S. Clearly explain how each of the following two scenarios (i) public health measures (e.g.
mitigation and suppression strategies) and (ii) a sudden arrival of an effective vaccine or
an effective anti-viral medication is likely to affect R(t). In light of your response, briefly
comment on the particular ongoing challenge in affecting the value of R(t) in Canada.
Question 2: 40 points, 200-250 words
Provide an argument that justifies the ‘COVID-shock’ as a ‘demand’ shock. Provide an
argument that justifies the ‘COVID-shock’ as a ‘supply’ shock. Suppose that you have data
available on aggregate output (also referred to as the Gross Domestic Product (GDP)) and
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the aggregate price level, P, for the months following the COVID shock in March 2020.
What association between these two might reveal that the COVID-shock is a predominantly
a demand shock or predominantly a supply shock? Explain clearly. Please use free-hand
sketched and labeled demand-supply diagrams similar to those shown in the lecture notes
to support your responses to both parts of the question.
Question 3: 20 points, 100-125 words
The second quarter of 2020 (i.e., the months of April, May, June) saw the deepest recession in the Canadian economy in terms of contraction in economic activity and employment.
In your view, which recovery path for output and employment from the following set of
possibilities is the economy likely to take over the next year or so:
V-shaped, U-shaped, L-shaped, W-shaped, K-shaped
Please pick only one and justify your reasoning. Points will be awarded based only on the
quality of reasoning.