Monetary contraction: Bank of Canada contracts money supply M to fight the inflation running high. Illustrate the policy on the IS-LM-FE graph. a.Describe one method that the BoC can use to apply monetary contraction. Through open market operations: selling government securities, and collecting the liquidity; or increasing the policy rate. b.Describe the succession of events on the graph, and in words in the short run. Money supply decrease, consumption decrease, interest rates increase, and investments decrease, so output decreases. CAD appreciates and IS shifts left to worsen output. c. What happens in the long run? In the LR, prices decrease, real money balances increase, and the LM curve returns to the location before the policy. Y and r also return to their level before the application of policy. CAN YOU HELP ME EXPLAIN WITH DIAGRAM