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

Question

Quizplus · Accepted Answer

If most Australian firms expect their profits to fall due to the anticipated drought from the El Niño effect, they might reduce investment and production in anticipation of lower future demand. This reduction in investment and production can lead to a decrease in aggregate demand.

People Expect That the El Niño Effect Will Cause Drought