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2026, Question 3 · Short · 5 points · about 12 minutes

2026 AP Macroeconomics FRQ 3 answers

Closing a recessionary gap in Lizland

Pick a monetary policy action and compute the government spending change needed to close a recessionary gap, then link the price level change to the value of Lizland's currency on a foreign exchange graph.

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 2026 exam. It starts on page 5 of the PDF.

Open Question 3 (PDF, page 5)

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 5)

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

(i) The central bank would lower its administered interest rates, for example the interest rate it pays on reserves.

(ii) The spending multiplier is 1 / (1 minus 0.75) = 4. The change in government spending is the gap divided by the multiplier: 600 million / 4 = 150 million crowns. Government spending must increase by 150 million crowns.

What earns each point

  1. Lower the administered rates, such as interest on reserves. With ample reserves, that is how the central bank lowers the policy rate. Buying bonds is the limited reserves answer.
  2. An increase of 150 million crowns, with the work shown. A recessionary gap calls for more spending, and dividing the gap by the multiplier gives the smallest change that closes it.
Part B 1 point

Model answer

The price level increases. More government spending raises aggregate demand, and with SRAS unchanged, AD moving right raises the price level.

What earns the point

  1. The price level increases, because more government spending raises aggregate demand. Government spending is part of aggregate demand, so the explanation runs through AD.
Part C 2 points

Model answer

Draw the market for the Lizland crown: quantity of crowns across, the price of the crown in Andoh notes (AND per LIZ) up. A higher price level makes Lizland's goods dearer for people in Andoh, so they buy fewer of them and need fewer crowns. Demand for the crown shifts left, from D1 to D2, and the exchange rate falls from ER1 to ER2: the crown depreciates.

ER1ER2Q2Q1SD1D2Quantity of Lizland crownsPrice of the crown (AND per LIZ)ER1ER2Q2Q1SD1D2Quantity of Lizland crownsPrice of the crown (AND per LIZ)

What earns each point

  1. A correctly labeled foreign exchange market for the Lizland crown. The vertical axis is the crown's price in the other currency, Andoh notes per crown.
  2. Demand for the crown decreases (or supply of it increases), and the crown depreciates. Dearer Lizland goods mean fewer sales abroad and so less demand for crowns. Showing it as more crowns supplied, as Lizlanders buy relatively cheaper foreign goods, is also accepted.

Question, scoring guidelines and Chief Reader report: College Board. The title, summary and worked answer are ours.