2025, Set 2, Question 3 · Short · 5 points · about 12 minutes
2025 AP Macroeconomics FRQ 3 (Set 2) answers
Thai income growth and Nepal's economy
Graph Nepal at full employment, show the effect of a trading partner getting richer, compute the spending change needed to close the gap, and explain how automatic stabilizers soften the swing.
Skip to the worked answer and scoring (try the question first if you can)
Lessons this question draws on
1 Read the question
The question is College Board's, from the 2025, Set 2 exam. It starts on page 5 of the PDF.
2 Write your answer
Answer each part the way you would on the exam, in full sentences, with your work shown. Your writing saves as you type.
3 Score it
Score your answer against College Board's scoring guidelines, one point at a time. Give yourself a point only when your answer says what the guideline asks for.
Scoring guidelines (PDF, page 7) What the exam readers saw (Chief Reader report)
4 Worked answer and scoring
Here is how a response that earns every point could read, part by part, and what each of College Board's scoring points asks for, put in our own words. Open a part once you have written your own answer to it. The scoring guidelines PDF above is the official word on every point.
Part A 2 points
Model answer
Draw AD sloping down, SRAS sloping up and a vertical LRAS. Nepal is in long-run equilibrium, so all three cross at one point. Label the price level there PL1 and the output Y1, and since output is at full employment, Y1 is also YF.
What earns each point
- A correctly labeled AD and AS graph with PL1 and Y1 where AD meets SRAS. Price level up, real output across, and the equilibrium marked on both axes.
- A vertical LRAS at Y1, so Y1 is YF. Long-run equilibrium means actual output equals full-employment output, so LRAS runs straight through the point where AD meets SRAS.
Part B 1 point
Model answer
Higher incomes in Thailand mean Thais buy more of Nepal's exports. Net exports are part of Nepal's aggregate demand, so AD shifts right from AD1 to AD2. Real output rises to Y2 and the price level rises to PL2.
What earns the point
- AD shifts right, with Y2 and PL2 both higher than before. Thailand's higher income raises its spending on Nepal's goods, so Nepal's exports, and with them its aggregate demand, go up.
Part C 1 point
Model answer
Output is now above full employment, so the gap is closed by cutting spending. The spending multiplier is 1 / (1 minus 0.75) = 4. The change in government spending is the gap divided by the multiplier: negative 400 million / 4 = negative 100 million rupees. Government spending must fall by 100 million rupees.
What earns the point
- A decrease of 100 million rupees, with the work shown. The gap is inflationary, so spending falls. Dividing the gap by the multiplier gives the smallest change that closes it; multiplying gives 1,600 million, a common slip.
Part D 1 point
Model answer
As real income rises, people and businesses pay more in income taxes without any new law, and fewer people qualify for transfer payments such as unemployment benefits. Both slow the rise in disposable income, so consumption grows more slowly, and the increase in real output is smaller than it would otherwise be.
What earns the point
- Tax revenue rises automatically (or transfers fall) as income rises, which slows the growth of disposable income and of consumption. Automatic stabilizers work without anyone deciding to act. Describing the long-run self-adjustment of wages and SRAS answers a different question, and the readers reported it as a common mistake. Only 10 percent of responses earned it.
Common mistakes
From what the exam readers reported seeing in 2025 students' answers, in our words:
- In part C, multiplying the 400 million gap by the multiplier instead of dividing, or calling for more government spending when output is above full employment.
- In part D, describing how wages and SRAS adjust in the long run instead of naming an automatic stabilizer, such as income taxes that rise with income, and explaining how it slows consumption.
Question, scoring guidelines and Chief Reader report: College Board. The title, summary and worked answer are ours.