The increasingly tense political conflict between Australia and China has impacted the traditional trade between the two nations. These include moves by China to impose a new anti-dumping tariff on barley, suspensions of certain beef imports and investigations into cheap Australian wine imports amid a coronavirus-led economic slowdown (South China Morning Post, 29/09/2020).

Assume that Australia is already experiencing recession due to the COVID-19 pandemic, bushfires, and drought. GDP has been dragged down particularly due to weak spending by households (a reduction in consumer confidence) and a significant reduction in investment (a reduction in business confidence).

Suppose the RBA tries to persuade everyone that it is necessary for the Bank to further decrease the cash rates in the future. This would decrease people's expectations of future interest rates. Explain what the effect would be today on equilibrium output by using IS-LM model.