Japan, the European Union, Canada, and Mexico have flexible exchange rates.

1. Suppose Japan attracts an increased amount of investment from the European Union.
2. Using a correctly labeled graph of the loanable funds market in Japan, show the effect of the increase in foreign investment on the real interest rate in Japan.
3. How will the real interest rate change in Japan that you identified in part (a)(i) affect the employment level in Japan in the short run? Explain.