People expect that the El Nino effect will cause drought in Australia in coming years. If most Australian firms expect their profits will fall during the next five years, Australiaʹs __________this year.
A) aggregate demand will decrease
B) aggregate demand will increase
C) short-run aggregate supply will increase
D) long-run aggregate supply will increase

Question

Quizplus · Accepted Answer

If most Australian firms expect a decrease in profits during the next five years due to the expected drought caused by the El Nino effect, this will likely lead to a decrease in consumer and business confidence, causing a decrease in aggregate demand. As a result, production and economic growth will likely slow down in the short run.

People Expect That the El Nino Effect Will Cause Drought