AP Macroeconomics Free Response Questions on Consumer Spending and the Multiplier
This page contains a focused set of AP Macroeconomics free response questions on consumer spending and the multiplier. These questions are designed to help students practise how changes in consumption, government spending, and fiscal policy affect aggregate demand, real output, and price levels in both the short run and long run.
If you’re revising multiple AP Macro topics, you can find the full collection of AP Macroeconomics free response questions by topic here.
What is AP Macroeconomics?
AP Macroeconomics is a high school–level course that introduces students to economics at the national and international level. Core topics include GDP, unemployment, inflation, monetary and fiscal policy, and international trade.
A major emphasis of the course is the aggregate demand–aggregate supply (AD–AS) model, which students use to analyse economic fluctuations, policy responses, and long-run adjustments. The AP exam assesses these skills through a combination of multiple-choice questions and free response questions (FRQs).
Where did we get these AP Macroeconomics free response questions?
The AP Macroeconomics free response questions on this page are drawn from official College Board exams and closely aligned teacher-developed practice materials. Each question reflects the structure, command terms, and diagrammatic requirements students encounter on the actual AP exam.
These questions specifically target:
- Changes in consumer spending
- Fiscal policy and government spending
- The multiplier effect
- Short-run vs long-run macroeconomic adjustment
How to use these AP Macroeconomics free response questions
For best results, practise these questions under timed exam conditions. Carefully label all graphs, clearly state calculations, and explain causal mechanisms step by step.
In multiplier questions, students are expected to:
- Calculate MPC or the multiplier correctly
- Explain how spending changes affect aggregate demand
- Distinguish between short-run and long-run outcomes
Consistent practice with FRQs like these improves both content mastery and exam technique.
What is consumer spending?
Consumer spending (also called consumption) is the total expenditure by households on goods and services. It is the largest component of aggregate demand, alongside investment, government spending, and net exports.
In AP Macroeconomics, changes in consumer spending are commonly linked to:
- Disposable income
- Consumer confidence
- Interest rates
- Tax policy
Many free response questions require students to analyse how changes in consumer spending shift aggregate demand and affect GDP, inflation, and unemployment.
What is the multiplier?
The multiplier describes how an initial change in spending leads to a larger final change in real GDP. When households receive income, they spend a portion of it, creating further rounds of income and expenditure throughout the economy.
The size of the multiplier depends on:
- The marginal propensity to consume (MPC)
- The marginal propensity to save (MPS)
Multiplier effects are central to AP questions on fiscal policy, recessions, and economic stabilisation, and are closely linked to broader topics such as aggregate demand and aggregate supply.
Multiplier questions also frequently overlap with exam questions on recessionary and inflationary gaps.
AP Macroeconomics Questions on Consumer Spending and The Multiplier
Question 1
Assume that the economy of Moneyland is in equilibrium with an actual unemployment rate equal to the natural rate of unemployment.
(a) Draw a correctly labeled graph of the aggregate demand, short-run aggregate supply, and long-run aggregate supply curves, and show each of the following. (i) The current equilibrium real output and price level, labeled Y1 and PL1, respectively (ii) The full employment output, labeled YF
(b) Assume that consumer spending in Moneyland decreases from $110,000 to $100,000 as a result of a decrease in disposable income in Moneyland from $135,000 to $110,000. (i) Calculate the marginal propensity to consume in Moneyland. Show your work. (ii) Show the short-run effect of the decrease in consumer spending in Moneyland on your graph in part (a), labeling the new equilibrium real output and price level Y2 and PL2, respectively.
(c) Following the decrease in consumer spending, explain how the economy would adjust in the long run in the absence of any policy actions.
Question 2
Assume the United States economy is in short-run macroeconomic equilibrium at an output level greater than potential output.
(a) Draw a correctly labeled graph of the aggregate demand, short-run aggregate supply, and long-run aggregate supply curves, and show each of the following. (i) The current equilibrium real output and price level, labeled as Y1 and PL1, respectively (ii) The full-employment output, labeled as YF
(b) Assume government spending increases by $100 billion. On your graph in part (a), show the short-run effect of the change in government spending on the equilibrium real output and price level. Label the new equilibrium output as Y2 and the new equilibrium price level as PL2.
(c) Assume the marginal propensity to consume is 0.8. As a result of the increase in government spending, what is the numerical value of the maximum change in each of the following in the short run? (i) Real output (ii) Household savings
(d) Draw a correctly labeled graph of the money market and show the effect of the change in real output identified in part (c)(i) on the equilibrium nominal interest rate.
(e) Based on the change in the nominal interest rate shown in part (d), what will happen to the prices of previously issued bonds in the short run?
(f) The United States and the European Union are trading partners with flexible exchange rates. The currency in the United States is the dollar, and the currency in the European Union is the euro. Assume the inflation rate in the United States increases relative to the inflation rate in the European Union. As a result of the change in the United States inflation rate, what will happen to each of the following in the foreign exchange market? (i) The demand for dollars. Explain. (ii) The international value of the dollar
(g) Suppose the Federal Reserve attempts to keep the value of the dollar constant in the foreign exchange market. Based on the change in the value of the dollar in part (f)(ii), should the Federal Reserve buy or sell each of the following? (i) The euro (ii) The dollar
Question 3
Canada is an open economy that is currently in a recessionary output gap.
(a) Draw a correctly labeled graph of the long-run aggregate supply, short-run aggregate supply, and aggregate demand curves, and show each of the following. (i) The current equilibrium real output and price level, labeled as Y1 and PL1, respectively (ii) Full-employment output, labeled Yf
(b) The central bank and the government do not take any policy actions to close the output gap. (i) Explain how the economy will adjust to full employment in the long run. (ii) On your graph in part (a), show how the economy adjusts to full employment in the long run.
(c) Suppose the Canadian government is unwilling to wait for the long-run adjustment process. The marginal propensity to consume is 0.8. The equilibrium real output is $500 billion and the full-employment output is $540 billion. (i) Calculate the minimum change and indicate the direction of change in government spending required to shift the aggregate demand curve by the amount of the output gap. (ii) Calculate the minimum change and indicate the direction of change in taxes required to shift the aggregate demand curve by the amount of the output gap.
(d) Assume instead that the Canadian central bank takes actions to restore the economy to full-employment output by influencing investment spending. Draw a correctly labeled graph of the money market, and show the effect of the actions taken by the central bank on the equilibrium interest rate.
(e) Canada and Mexico are trading partners. Draw a correctly labeled graph of the foreign exchange market of the Canadian dollar, and show the effect of the change in the interest rate in part (d) on the value of the Canadian dollar with respect to the Mexican peso
Answer Key
Question 1
Question 2
Question 3
Mark is an A-Level Economics tutor who has been teaching for 6 years. He holds a masters degree with distinction from the London School of Economics and an undergraduate degree from the University of Edinburgh.