43) Quantitative forecasting that projects past data without explaining the reasons for future
trends is called
A) scientific forecasting.
B) dumb forecasting.
C) empirical forecasting.
D) naïve forecasting.
44) Which of the following is not a drawback of forecasting using the compound growth rate
method?
A) only considers first and last observations
B) considers only equal absolute changes
C) disregards fluctuations between the original and terminal observations
D) does not consider any trends in the data
45) Charting observations on a semi-logarithmic graph will help the analyst to ascertain whether
A) absolute changes from period to period are constant.
B) whether percentage changes from period to period are constant.
C) whether percentage changes from period to period are declining.
D) Both B and C
46) A major problem in projecting with a trend line is that
A) only straight-line projections can be accommodated.
B) it is valid only if the trend is upward.
C) it will not forecast turning points in activity.
D) it is a very complex method of forecasting.
47) Which of the following is the exponential trend equation to forecast sales (S)?
A) S = a + b(t)
B) S = a + bt
C) S = a + b(t) + c(t)2
D) None of the above
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48) Among the advantages of the ________ technique of forecasting are ease of calculation,
relatively little requirement for analytical skills, and the ability to provide the analyst with
information regarding the statistical significance of results and the size of statistical errors.
A) least-squares trend analysis
B) compound growth rate
C) visual trend-fitting
D) expert opinion
49) Among the advantages of the least-squares trend analysis techniques is
A) the ease of calculation.
B) relatively little analytical skill required.
C) its ability to provide information regarding the statistical significance of the results.
D) All of the above
50) The forecasting method that involves using an average of past observations to predict the
future (if the forecaster feels that the future is a reflection of some average of past results) is the
A) moving average method.
B) econometric forecasting method.
C) exponential smoothing method.
D) Both A and B
E) Both A and C
51) An explanatory forecasting technique in which the analyst must select independent variables
that help determine the dependent variable is called
A) exponential smoothing.
B) regression analysis.
C) trend analysis.
D) moving average method.
52) When the more recent observations are more relevant to the estimate of the next period than
previous observations, the naïve forecasting method to employ is
A) exponential smoothing.
B) compound growth rate.
C) trend analysis.
D) moving averages.
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53) Which of the following is a Leading Economic Indicator?
A) commercial and industrial loans outstanding
B) industrial production
C) average weekly duration of unemployment
D) None of the above
54) Which of the following is a Lagging Economic Indicator?
A) change in average labor costs in manufacturing
B) M2 measure of the money supply
C) industrial production
D) None of the above
55) The Delphi method is a
A) smoothing technique in forecasting.
B) consensual forecast based on expert opinions.
C) compound growth approach to forecasting.
D) naïve forecasting approach.
56) The Trend Projection approach to forecasting is represented by
A) time-series regressions.
B) exponential smoothing.
C) opinion polls.
D) All of the above
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Analytical Questions
The following questions refer to this regression equation, (standard errors in parentheses.)
Q = 8,400 – 10 P + 5 A + 4 Px + 0.05 I, (1,732) (2.29) (1.36) (1.75) 0.15)
R2 = 0.65
N = 120
F = 35.25
Standard error of estimate = 34.3
Q = Quantity demanded
P = Price = 1,000
A = Advertising expenditures, in thousands = 40
PX = price of competitor’s good = 800
I = average monthly income = 4,000
1) Calculate the elasticity for each variable and briefly comment on what information this gives
you in each case.
2) Calculate t-statistics for each variable and explain what this tells you.
3) How is the R2 value calculated, and what information does this give you?
4) How would you evaluate the quality of this equation overall? Do you have any concerns?
Explain.
5) When would you use a one-tailed rather than a two-tailed t-test when checking significance
levels?
6) Should this firm be concerned if macroeconomic forecasters predict a recession? Explain.
7) The firm is considering changing its price to $900. Predict the quantity demanded at that price,
all other things equal and provide a 95% confidence interval on your estimate. (In doing this,
explain the value of t-critical you will use in developing your 95% confidence interval.)
8) What is multicollinearity? In general, how would you know if you had a problem with
multicollinearity, and how could you correct it?
9) How could a manager use the information contained in this regression equation?
10) Why is the identification problem more likely with time-series estimates of demand?
11) Use the equation
Qd = 5,000 – 15P + 50A + 3Px – 4I, (2,117) (2.7) (15) (2) (3)
where Qd = Quantity Demanded, P = Good Price, A = Advertising Expenditures, Px = Price of a
Competitive Good, A = Advertising Expenditures, I = Average Monthly Income, and the
Standard Errors of the Regression Coefficients are shown in Parentheses.
Calculate the t-statistics for each variable and explain what inferences can be drawn from them.
If R2 of this equation is 0.25, what inference can be drawn from it?
12) What are the key steps for analyzing Demand functions based on Regression results?
13) Explain the difference between Cross-Section and Time-Series Regression Analysis.
14) The demand equation for the Widget Company has been estimated to be:
Q = 20,000 + 10 I – 50P + 20 PC
where Q = monthly number of widgets sold, I = average monthly income, P = price of widgets,
and PC = average price of competing goods.
a. If next month’s income is forecast to be 2,000, the price of competing goods is forecast to
be $20, and the price of widgets will be set at $30, forecast sales.
b. What will sales be if the price is dropped to $20?
15) Based on annual data from 2000-2010, the Gadget Company estimates that sales are growing
according to a linear trend:
Q = 50,000 + 200t
where t is time and t = 0 in 2000.
a. Forecast sales for 2013.
b. Do you see any problems with this forecasting method?
16) If $1,000 is placed in an account earning 8% annually on January 1, 1999, how much would
be in this account on January 1, 2013?
17) You are given the following straight-line trend equation: Sales = 1,275 + 89.3t, where 1990
represents t = 1. Project sales for 2000.
18) The following are the sales achieved by Jensen Fabrics during the last 7 years:
2007 $116,000
2008 124,000
2009 127,000
2010 146,000
2011 155,000
2012 154,000
2013 162,000
Using the compound growth rate calculation, what would be your estimate for sales in 2014?
19) The following are the actual sales for the last six periods:
Period Sales
1 750
2 820
3 600
4 850
5 900
6 700
Using a 3-month moving average, what would be your prediction for period 7?
20) The following are the actual sales for the last six periods:
Period Sales
1 750
2 820
3 600
4 850
5 900
6 700
If the exponential smoothing forecasting method is used, and the smoothing factor is .6, what
will be the forecast for period 7?
21) What are the prerequisites of a good forecast?
22) What are the four different characteristics that data exhibit when undertaking time-series
forecasts?
23) Explain the difference between the Moving Average and Exponential Smoothing approaches
to forecasting.