You Have Just Read That Australia Has Suffered a Drought

Multiple Choice

You have just read that Australia has suffered a drought, destroying its wheat crop for this year. The effect of this adverse supply shock on Australia would probably be

A) an increase in prices and an increase in real interest rates.
B) an increase in prices, an increase in nominal interest rates, but a decrease in real interest rates.
C) a decrease in prices and an decrease in real interest rates.
D) a decrease in prices, a decrease in nominal interest rates, but an increase in real interest rates.