ECS4861 – Advanced Macroeconomics | January/February
2026 Supplementary Exam Memo (UNISA South Africa)
, ECS4861 – Advanced Macroeconomics | January/February
2026 Supplementary Exam Memo (UNISA South Africa)
Question 1:
What is the primary cause of the Phillips Curve's trade-off between inflation and
unemployment?
• A) Supply shocks
• B) Demand shocks
• C) Adaptive expectations
• D) Rational expectations
Correct Option: C) Adaptive expectations
Rationale: The Phillips Curve illustrates an inverse relationship between inflation and
unemployment. The concept of adaptive expectations suggests that people form their
expectations of future inflation based on past experiences, which influences wage-
setting behavior. This relationship suggests that as inflation expectations adjust due to
past inflation, the trade-off between inflation and unemployment shifts, making
adaptive expectations a key reason for this observed trade-off.
Question 2:
In the context of Open Economy Macroeconomics, which of the following is most
likely to result from a decrease in a country's interest rates?
• A) An increase in capital inflow
• B) A decrease in exports
• C) A depreciation of the domestic currency
• D) An immediate increase in the inflation rate
Correct Option: C) A depreciation of the domestic currency
Rationale: A decrease in a country's interest rates generally makes domestic assets
less attractive to foreign investors, leading to capital outflows. This reduced demand for
the domestic currency (because investors sell it to buy foreign currencies) results in
depreciation. A weaker currency can also boost exports by making them cheaper for
foreign consumers, influencing trade balances.
Question 3:
Which of the following models emphasizes the role of expectations in determining
the effectiveness of monetary policy?
• A) New Keynesian model
2026 Supplementary Exam Memo (UNISA South Africa)
, ECS4861 – Advanced Macroeconomics | January/February
2026 Supplementary Exam Memo (UNISA South Africa)
Question 1:
What is the primary cause of the Phillips Curve's trade-off between inflation and
unemployment?
• A) Supply shocks
• B) Demand shocks
• C) Adaptive expectations
• D) Rational expectations
Correct Option: C) Adaptive expectations
Rationale: The Phillips Curve illustrates an inverse relationship between inflation and
unemployment. The concept of adaptive expectations suggests that people form their
expectations of future inflation based on past experiences, which influences wage-
setting behavior. This relationship suggests that as inflation expectations adjust due to
past inflation, the trade-off between inflation and unemployment shifts, making
adaptive expectations a key reason for this observed trade-off.
Question 2:
In the context of Open Economy Macroeconomics, which of the following is most
likely to result from a decrease in a country's interest rates?
• A) An increase in capital inflow
• B) A decrease in exports
• C) A depreciation of the domestic currency
• D) An immediate increase in the inflation rate
Correct Option: C) A depreciation of the domestic currency
Rationale: A decrease in a country's interest rates generally makes domestic assets
less attractive to foreign investors, leading to capital outflows. This reduced demand for
the domestic currency (because investors sell it to buy foreign currencies) results in
depreciation. A weaker currency can also boost exports by making them cheaper for
foreign consumers, influencing trade balances.
Question 3:
Which of the following models emphasizes the role of expectations in determining
the effectiveness of monetary policy?
• A) New Keynesian model
