Homework answers / question archive / COVID-19 Tradeoffs (35 points) During the pandemic, policymakers face a classic policy dilemma: do they put in place a sharp lockdown with all the attendant economic costs, or do they move incrementally and try to slow the spread of the disease while keeping the economy running? Policymakers now have some evidence of how to slow or stop the spread of COVID-19 and the economic costs associated with those measures

COVID-19 Tradeoffs (35 points) During the pandemic, policymakers face a classic policy dilemma: do they put in place a sharp lockdown with all the attendant economic costs, or do they move incrementally and try to slow the spread of the disease while keeping the economy running? Policymakers now have some evidence of how to slow or stop the spread of COVID-19 and the economic costs associated with those measures

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COVID-19 Tradeoffs (35 points) During the pandemic, policymakers face a classic policy dilemma: do they put in place a sharp lockdown with all the attendant economic costs, or do they move incrementally and try to slow the spread of the disease while keeping the economy running? Policymakers now have some evidence of how to slow or stop the spread of COVID-19 and the economic costs associated with those measures. In other words, they have some idea of the feasibility frontier. Please read pp. 65-67 and pp. 73-76 in Chapter 2 of the attached IMF report for a summary of the evidence before tackling the next few questions. Feasibility frontiers can have different shapes depending on the kinds of goods being analyzed, how they are measured, and their assumed relationship. Consider a chart with “COVID-related Deaths” on the horizontal axis (“a bad”) and “GDP Growth” (“a good”) on the vertical axis, remembering that economic growth can be negative (i.e., the economy can shrink by falling into a recession). Use the chart below as a template. GDP Growth 0 COVID Related Deaths Figure 2: Covid-19 Tradeoffs 1. Thinking about the information in the IMF report, now draw a feasibility frontier that maps the short term (e.g., three months or less) trade-offs between these two variables - GDP growth rates and COVID deaths. Explain why you drew the curve the way you did. 2. Think about the feasibility frontier you drew in question 1. Again, referencing the IMF study, how might your feasibility frontier change if you consider it from a longer term (e.g., 6 months or more for this exercise) perspective? Draw a long-term (LT) curve and explain your reasoning 3. Provinces have taken radically different approaches to addressing the pandemic. The greatest contrast, arguably, is between Atlantic Canada, which formed a bubble and moved quickly to re-impose a sharp lockdown, and Alberta, which was hesitant to a full lockdown (see the two news articles attached). Using the feasibility curves from question 2, draw indifference curves for Alberta versus Atlantic Canada in both the short-run and long-run scenarios and explain your reasoning 4. How do you think policymakers justify their radically different approaches to lockdowns given the IMF data?