This paper extends the canonical epidemiology model to study the interaction between economic decisions and epidemics. The authors find that people reduce consumption and work to reduce the chances of being infected, which reduces the severity of the epidemic but exacerbates the size of the recession. The competitive equilibrium is not socially optimal because infected individuals do not fully internalize the effect of their economic decisions on the spread of the virus. In the benchmark model, the best simple containment policy increases the severity of the recession but saves about half a million lives in the United States. The paper also explores the impact of medical preparedness, treatments, and vaccines on the dynamics of the epidemic and the design of optimal policy. The results suggest that the possibility of treatments and vaccines can significantly reduce the severity of the recession and the death toll, but the optimal policy remains to be severe containment measures to minimize deaths.This paper extends the canonical epidemiology model to study the interaction between economic decisions and epidemics. The authors find that people reduce consumption and work to reduce the chances of being infected, which reduces the severity of the epidemic but exacerbates the size of the recession. The competitive equilibrium is not socially optimal because infected individuals do not fully internalize the effect of their economic decisions on the spread of the virus. In the benchmark model, the best simple containment policy increases the severity of the recession but saves about half a million lives in the United States. The paper also explores the impact of medical preparedness, treatments, and vaccines on the dynamics of the epidemic and the design of optimal policy. The results suggest that the possibility of treatments and vaccines can significantly reduce the severity of the recession and the death toll, but the optimal policy remains to be severe containment measures to minimize deaths.