National Income & Price Determination

Name: AP Macroeconomics Unit 3: National Income & Price Determination
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17–27% of the exam3 lessons · 43 min

What this unit covers

The topics below follow the published Macro course framework for Unit 3. This unit is worth 17–27% of the exam, so budget your time against that rather than against how long the unit takes to teach.

AD-ASMultipliersFiscal policyEquilibrium

Lessons in this unit

Aggregate Demand, Aggregate Supply & Equilibrium15 min · 3 objectivesExplain the shape of the aggregate demand and short-run aggregate supply curves · Distinguish the short-run and long-run macroeconomic equilibria · Predict how shifts in AD or SRAS change output and the price level
The Spending & Tax Multipliers14 min · 3 objectivesDerive the spending multiplier from the marginal propensity to consume · Calculate the total change in GDP from an initial change in spending · Compare the spending multiplier with the smaller tax multiplier
Fiscal Policy14 min · 3 objectivesDistinguish expansionary from contractionary fiscal policy · Determine the spending or tax change needed to close an output gap · Explain how automatic stabilizers moderate the business cycle

Formulas in Unit 3

The components of aggregate demand

AD ≡ C + I + G + Xn

A rise in any component shifts AD right; a fall shifts AD left. This mirrors the GDP expenditure identity, now viewed as a demand relationship at each price level.

The multipliers

Spending multiplier = 1 / (1 − MPC) = 1 / MPS · Tax multiplier = −MPC / (1 − MPC)

MPC + MPS = 1. Total ΔGDP = (multiplier) × (initial change). The tax multiplier is always smaller in absolute value than the spending multiplier.

Spending needed to close a gap

Required ΔG = Output gap / Spending multiplier

Using taxes instead: Required ΔT = − Output gap / Tax multiplier. Because the tax multiplier is smaller, the required tax change is larger than the required spending change.

What examiners penalize here

Always draw the full AD–AS diagram with **three** curves (AD, SRAS, LRAS) and mark potential output. Free-response graders check that you correctly identify the gap relative to LRAS and shift the *correct* curve in the *correct* direction.
Memorize both multiplier formulas and always compute MPS = 1 − MPC first. A frequent free-response task gives you the MPC and asks for the spending needed to close a specific output gap: divide the gap by the spending multiplier.
Distinguish **automatic** stabilizers (built-in, no legislation — progressive taxes, unemployment benefits) from **discretionary** fiscal policy (new laws changing spending or tax rates). Free-response prompts often reward you for correctly classifying which one is at work.

Practice Macro

Our practice bank is drawn from across the whole course rather than filtered to one unit, which is closer to how the exam asks anyway — it will not tell you which unit a question is testing.

38 practice questionsEvery one with a written explanation FRQ trainerWritten answers scored against the rubric Macro study guideAll units, weights and score data in one place All 6 Macro unitsThe full course

Questions about this unit

How much of the AP Macroeconomics exam is Unit 3?

Unit 3, National Income & Price Determination, is worth 17–27% of the Macro multiple-choice section according to the published course framework. Across all 6 units that makes it one of the heaviest units on the exam, and worth front-loading.

What topics are covered in Macro Unit 3?

National Income & Price Determination covers AD-AS, Multipliers, Fiscal policy and Equilibrium.

How should I study Macro Unit 3?

Read the 3 lessons below first — about 45 minutes — then work practice questions on these topics. Finish with practice questions and read the explanation for every one you get right by elimination as well as the ones you miss.

All 6 units of AP Macroeconomics

Unit names, topics and exam weights follow the published College Board course framework for AP Macroeconomics. AP® is a trademark registered by the College Board, which does not endorse this site.