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,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 firms expect their profits to fall, they will likely reduce their investments and cut back on production, leading to a decrease in aggregate demand. This is because when firms expect lower profits in the future, they are less willing to spend money on new investments and hiring workers. Therefore, option C is the best choice as it reflects this expectation of falling profits and its impact on aggregate demand.

People Expect That the El Nino Effect Will Cause Drought