Question 2

The COVID-19 pandemic disrupted the world economy, with most countries going into recession.

(a) With the help of the Aggregate Demand - Aggregate Supply model, explain how a pandemic is likely to impact an economy.

(b) Discuss the type of monetary and fiscal policy that would be required to get the economy back to full employment level of output and their resulting effect on the current account balance:

• under a floating exchange rate system.
• under a fixed exchange rate system.