People expect that the El Niño 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

With the expectation of a future drought causing a decrease in profits for firms, there will be a decrease in investment and consumption spending, leading to a decrease in aggregate demand.

People Expect That the El Niño Effect Will Cause Drought