Assume that the economy of Nicoland has a flourishing trade relationship with many nations, including the United States and an active public sector. Nicoland's economy is currently operating below the full employment level of output and trade has decreased between the two nations.

1) Explain the impact of the problems in Nicoland's economy on the United States economy, using aggregate demand aggregate supply analysis.

2) If Congress wants to repair the effects on the United States economy noted in (1) above, identify what fiscal policy action it would undertake.

3) Draw a correctly labeled AD/AS graph showing the impact of Congressional action on each of the following:

a) output

b) price level