How do I know when the exam wants Macaulay duration instead of modified duration?

Ask what the question is requesting before you think about formulas.

• If it wants the weighted-average time of promised cash flows, use Macaulay duration.
• If it wants approximate percentage price change from a yield move, use modified duration.

Quick check with a fictional issuer:

• Lakeshore Transit 6-year bond
• Macaulay duration might be 5.1 years
• Modified duration might be 4.9

Those numbers are related, but they answer different questions. A question about when price risk and reinvestment risk balance over a holding horizon is pointing you toward Macaulay duration. A question about how much the bond price falls when yields rise by 25 basis points is pointing you toward modified duration.