A). Suppose, the US economy is overheating and the Fed wants to increase the interest rate. Explain how the Open Market Sale will increase the interest rate and decrease the money supply.

(B). We know by definition, Aggregate Demand, AD=C+I+G+NX, where C is consumption, G is government spending, I is investment and NX is net exports. We also know that as the price level increase, AD decreases. It means as the price level increases, the components of AD also decrease. Explain how an increase in the price level will decrease NX. (You just need to increase how an increase in the price level in the USA will decrease US net exports.)