...what do you say? This came up for us recently. DD (who is 3.5 years old) out of the blue one day said that she wanted a baby. (A baby brother, she said, then quickly revised to a baby sister.
We just said, "We're a family of three, and we're not going to have a new baby in our house." She seemed to accept that, although she mentioned it again a few days later, and she got the same answer.
Has this come up with your LO? How do you handle it?