2. Belgium, Qatar, Chile, and Canada all have central banks which have decided not to peg the value of their currencies in the foreign exchange market. Therefore, these countries are operating a floating exchange rate in the FOREX.

Now assume that Qatar increases its minimum wage and this policy results in detracting direct investment.

(a). Draw a correctly-labeled graph of the Loanable Funds market showing the effect on direct investment and the real interest rate in Qatar. (2 pts)

(b). How will the real interest rate change in Qatar that you identified in part (a)(i) affect the unemployment level in Qatar in the short run? Explain. (2 pts)