Question 1

The table below shows semi-annual demand (in 1,000s) for Didgets (they're like Widgets, only they're easier to work). A linear trend has been estimated using this data set with t = 1 for 1991.1 and t = 6 for 1993.2. It has an intercept of 1.66 and a slope of 0.24. Use the ratio-to-trend method to calculate seasonal adjustment factors for the first and second half of the year and then forecast the level of demand for 1996.1 and 1996.2. Note: round all intermediate calculations to two decimal places.

Accepted Answer

Seasonal factor for Year.1 = (0.95 + 0.92 + 0.87)/3 = 0.91
Seasonal factor for Year.2 = (1.12 + 1.07 + 1.06)/3 = 1.08
Forecast for 1996.1 (t = 11): (0.91)(1.66 + 0.2411) = (0.91)(4.30) = 3.91
Forecast for 1996.2 (t = 12): (1.08)(1.66 + 0.2412) = (1.08)(4.54) = 4.90

Question 2

A firm has determined that its average level of sales (S_t) per week in $1,000s during a given year depends on the previous year's level of sales (S_t-1), the previous year's level of advertising (A_t-1) per month in $1,000s, and the current year's rate of annual industry growth (G_t) in percentage terms. The firm has also determined that the level of industry growth in the current period depends on the previous period's rate of industry growth (G_t-1) and on current period sales by the firm. During the current period, the firm's level of sales was $100,000, advertising was $40,000, and the rate of growth in the industry was 4%. The firm estimated the following two-equation econometric model: S_t = 4 + 0.40 S_t-1 + 0.10 A_t-1 + G_t and G_t = 1 + 0.5 G_t-1 + 0.5 S_t (i) Formulate a single-equation forecasting equation from this model. (ii) Forecast the level of sales in the next period.

Accepted Answer

Substitution yields: S_t = 4 + 0.40 S_t-1 + 0.10 A_t-1 + 1 + 0.5 G_t-1 + 0.5 S_t Solving for S_t+1 yields: S_t+1 = 10 + 0.80 S_t + 0.20 A_t + G_t The forecast is: S_t+1 = 10 + (0.80)(100) + (0.20)(40) + 4 = 102

Question 3

Regression analysis was used to estimate the following seasonal forecasting equation:
St = 124 + 18 D1 - 46 D2 - 28 D3 + 2.5 t
D1 is a dummy variable that is equal to one in the first quarter and zero otherwise; D2 is a dummy variable that is equal to one in the second quarter and zero otherwise; and D3 is a dummy variable that is equal to one in the third quarter and zero otherwise. Forecast the level of sales in the second quarter of time period ten.

Accepted Answer

A)   195
B)   170
C)   103
D)   None of the above is correct. C

Question 4

Regression analysis was used to estimate the following seasonal forecasting equation:
St = 124 + 18 D1 - 46 D2 - 28 D3 + 2.5 t
D1 is a dummy variable that is equal to one in the first quarter and zero otherwise; D2 is a dummy variable that is equal to one in the second quarter and zero otherwise; and D3 is a dummy variable that is equal to one in the third quarter and zero otherwise. Forecast the level of sales in the fourth quarter of time period ten.

Accepted Answer

A)   149
B)   180
C)   205
D)   None of the above is correct.

Question 5

The table below shows the demand for Fidgets (they're like Widgets, only they're more active) over an eight month period. Calculate a four-period moving average forecast for September. Also evaluate the quality of the four-period moving average forecasting model by calculating the root mean square error for the data set. Note: round all intermediate calculations to two decimal places.

Accepted Answer

The answer of The table below shows the demand for...

Question 6

One advantage of the Delphi method is that it avoids a "bandwagon effect"
that could lead to incorrect or biased conclusions.

Accepted Answer

A) True 
 B)False

Question 7

The use of an estimated demand equation to forecast demand is an example of econometric forecasting.

Accepted Answer

A) True 
 B)False

Question 8

The use of leading indicators to forecast time-series data is an example of econometric forecasting.

Accepted Answer

A) True 
 B)False

Question 9

Forecasts based on leading indicators are qualitative.

Accepted Answer

A) True 
 B)False

Question 10

The table below shows semi-annual demand (in 1,000s) for Shidgets (they're like Widgets, only quieter). A linear trend has been estimated using this data set with t = 1 for 1990.1 and t = 8 for 1993.2. It has an intercept of 0.76 and a slope of 0.20. Use the ratio-to-trend method to calculate seasonal adjustment factors for the first and second half of the year and then forecast the level of demand for 1995.1 and 1995.2. Note: round all intermediate calculations to two decimal places.

Accepted Answer

The answer of The table below shows semi-annual demand (in...

Question 11

The ratio-to-trend method is used to estimate a linear trend equation.

Accepted Answer

A) True 
 B)False

Question 12

The table below shows the demand for Gadgets (they're like Widgets, only they're more mechanical) over a five-month period. Calculate exponential smoothing forecasts for each month and for July. Use a coefficient of 0.5 and assume that the forecast for January was 8. Also evaluate the quality of the exponential smoothing model by calculating the root-mean-square error for the data set. Note: round all intermediate calculations to two decimal places.

Accepted Answer

The answer of The table below shows the demand for...

Question 13

Macroeconomic forecasts are generally based on multiple-equation econometric models.

Accepted Answer

A) True 
 B)False

Question 14

The Delphi method generates forecasts by surveying consumers to determine their opinions.

Accepted Answer

A) True 
 B)False

Question 15

Definitional equations must be estimated using regression analysis.

Accepted Answer

A) True 
 B)False

Question 16

Councils of distinguished foreign dignitaries and businesspersons are used to obtain qualitative forecasts with a foreign perspective.

Accepted Answer

A) True 
 B)False

Question 17

The use of a linear trend equation to forecast future values of a variable is based on the assumption of a constant amount of change per time period.

Accepted Answer

A) True 
 B)False

Question 18

A firm has determined that its average level of sales (S_t) per week in $1,000s during a given year depends on the previous year's level of sales (S_t-1), the previous year's level of advertising (A_t-1) per month in $1,000s, and the current year's rate of annual industry growth (G_t) in percentage terms. The firm has also determined that the level of industry growth in the current period depends on the previous period's rate of industry growth (G_t-1) and on current period sales by the firm. During the current period, the firm's average level of sales was $100,000, advertising was $10,000, and the rate of growth in the industry was 2%. The firm estimated the following two-equation econometric model: S_t = 5 + 0.50 S_t-1 + 0.10 A_t-1 + 2 G_t and G_t = 0.5 G_t-1 + 0.25 S_t (i) Formulate a single-equation forecasting equation from this model. (ii) Forecast the level of sales in the next period.

Accepted Answer

The answer of A firm has determined that its average...

Exam 4: Demand Forecasting

One advantage of the Delphi method is that it avoids a "bandwagon effect" that could lead to incorrect or biased conclusions.

The use of an estimated demand equation to forecast demand is an example of econometric forecasting.

The use of leading indicators to forecast time-series data is an example of econometric forecasting.

Forecasts based on leading indicators are qualitative.

The ratio-to-trend method is used to estimate a linear trend equation.

Macroeconomic forecasts are generally based on multiple-equation econometric models.

The Delphi method generates forecasts by surveying consumers to determine their opinions.

Definitional equations must be estimated using regression analysis.

Councils of distinguished foreign dignitaries and businesspersons are used to obtain qualitative forecasts with a foreign perspective.

The use of a linear trend equation to forecast future values of a variable is based on the assumption of a constant amount of change per time period.