How does vertical scaling impact cost in AWS?

Vertical scalling up nothing but method of increasing the capacity of single server

Can vertical scaling be done without stopping the instance?

No, this instance should be stopped during vertical scalling, due underlying resources to be reconfigured.

Can I downgrade from a larger instance type to t2.micro?

Yes, we stop and downgrade.

Can vertical scaling be done without stopping the instance?

Yes

Can I downgrade from a larger instance type to t2.micro?

No