Guiding Scenario

In 2020, countries around the world had to grapple with the effects of COVID-19,a highly infectious disease caused by a newly discovered coronavirus, for which there was no treatment or vaccine. The COVID-19 pandemic prompted public health restrictions, with widespread economic impacts. As the global oil demand crumbled and OPEC's oil price war continued, oil-producing and oil-exporting countries also faced a second economic challenge of low oil prices.

Assume that it is 2020 and country X is facing the economic impacts of both COVID-19 and low oil prices for its oil exports. Use the relevant economic theories and concepts of Macroeconomics to answer the question below.

What fiscal policy would you recommend to help minimize the economic effects of COVID-19? Use the AD-AS diagram to illustrate how your policy recommendations could be expected to affect the net effect of COVID-19 as you outlined for Question 4 above.