GREAT ZIMBABWE UNIVERSITY

MUNHUMUTAPA SCHOOL OF COMMERCE

GROUP PRESENTATION

Name : Tavonga Enerst Maswera M210820(2.1)

:Chipanera Wonderful M187900(2.2)

:David Tota M197154(2.2)

:Chiweni Sheron M197166 (2.1)

Question1)Define and describe simple index numbers, relative index and weighted average of
relatives

A simple index number is the ratio of two values representing the same variable, measured in two
different situations or in two different periods. For example, a simple index number of price will give
the relative variation of the price between the current period and a reference period.The most
commonly used simple index numbers are those of price, quantity, and value.

Meaning of Index Numbers:

The value of money does not remain constant over time. It rises or falls and is inversely related to
the changes in the price level. A rise in the price level means a fall in the value of money and a fall in
the price level means a rise in the value of money. Thus, changes in the value of money are reflected
by the changes in the general level of prices over a period of time. Changes in the general level of
prices can be measured by a statistical device known as ‘index number.’

Index number is a technique of measuring changes in a variable or group of variables with respect to
time, geographical location or other characteristics. There can be various types of index numbers,
but, in the present context, we are concerned with price index numbers, which measures changes in
the general price level (or in the value of money) over a period of time.
Price index number indicates the average of changes in the prices of representative commodities at
one time in comparison with that at some other time taken as the base period. According to L.V.
Lester, “An index number of prices is a figure showing the height of average prices at one time
relative to their height at some other time which is taken as the base period.”

The relative index of inequality (RII) is a commonly used measure of the extent to which the
occurrence of an outcome such as chronic illness or early death varies with socioeconomic status or
some other background variable. The standard RII estimator applies only to linear variation in
incidence rates. In this paper a general definition of the RII is introduced, alternative approaches to
point estimation are considered, and a parametric bootstrap method is suggested for the
construction of approximate confidence intervals. Estimation based on cubic splines fitted by
maximum penalized likelihood is developed in some detail, and the proposed approach handles
naturally the commonly needed adjustment for a ‘standardizing’ covariate such as age. Death rates
in a large longitudinal study in England and Wales from 1996–2000 are analyzed in order to illustrate
the various methods. A small simulation study explores the relative merits of different estimators.
The approach based on cubic splines is found to reduce bias substantially, at the expense of some
increase in variance, when variation in incidence rates is nonlinear.

The notion of a relative index of inequality (RII) has been much used recently in the study of social
inequalities in health, especially following the influential work of Kunst and Mackenbach (1994). The
broad purpose of such an index is to compare rates of incidence, for example of death or disease,
between those having the lowest and highest socioeconomic status. The resultant measure of social
inequality is typically used for comparative purposes, or to study time-trends; it also has interpretive
value as a stand-alone measure. For a recent example see Davey Smith et al. (2002), where it is
shown that in Britain socioeconomic inequality in mortality rates continued to rise during the 1990s.

In the simplest setting, every individual in the population of interest has a notional socioeconomic
rank x, scaled to take values between 0 (lowest) and 1 (highest). The rate of incidence of the
outcome of interest, such as death or a specific type of ill-health, is assumed to depend on x and will
be denoted by f(x). It is assumed f(x) is everywhere positive, and the RII is then defined as f(0)/f(1).
Note that ‘rate’ here relates to the process which gives rise to death or disease, not to actual
incidence in the population under study. That is, the RII compares underlying incidence rates at x = 0
and x = 1 rather than the actual outcomes for the notional pair of cases that have social ranks 0 and
1 in the study population; in the usual terminology of sampling theory (e.g. Cassel et al., 1977), the
RII is thus a ‘superpopulation’

Weighted average is a calculation that takes into account the varying degrees of importance of the
numbers in a data set. In calculating a weighted average, each number in the data set is multiplied
by a predetermined weight before the final calculation is made.A weighted average can be more
accurate than a simple average in which all numbers in a data set are assigned an identical weight.

The weighted average takes into account the relative importance or frequency of some factors in a
data set..A weighted average is sometimes more accurate than a simple average.Stock investors use
a weighted average to track the cost basis of shares bought at varying times.

Weighted Averages

In calculating a simple average, or arithmetic mean, all numbers are treated equally and assigned
equal weight. But a weighted average assigns weights that determine in advance the relative
importance of each data point.A weighted average is most often computed to equalize the
frequency of the values in a data set. For example, a survey may gather enough responses from
every age group to be considered statistically valid, but the 18-34 age group may have fewer
respondents than all others relative to their share of the population. The survey team may weight
the results of the 18-34 age group so that their views are represented proportionately
QUESTION 2)Define and describe Laspyre and Paasches indexes as well as the Fisher Index

Is the consumer price index used to measure the change in price of a basket of goods and services,
relative to a specified base period weighting.it is also called the base year quantity weighted method.

Laspeyres price index is used to measure the economy`s general price level, cost of living and
calculate inflation. laspeyres index differ from other indices because it uses weights taken from a
base period .The index commonly uses a base year figure of 100 , with periods of higher price levels
shown by an index greater than 100 and periods of lower price levels by indices lower than 100

P1 = price of the individual item at the observation period

P0 = is the price of the individual item at the observation period

Q1 = the quantity of the individual item at the base period

Example

Item Year Year Year

0 1 2
GOOD A 5 10 7
GOOD B 10 12 13
GOOD C 20 25 24
 Item year year Year
0 1 2
GOOD A 100 125 150
GOOD B 200 225 250
GOOB C 300 325 350

ADVANTAGES OF LASPEYRES

1, easy to calculate and commonly used

2, cheap to construct

3, Quantities for futures years do not need to be calculated, only base year quantities

Disadvantasges

1, New goods; more expensive new goods that cause an upward bias in price

2, Quality changes; prices increases solely due to quality improvements should not be considered
inflation

3, Substitution, goods or services that have become relatively cheaper for those that have become
relatively more expensive

PAASHE INDEX

Is a consumer index used to measure the change in the price and quantity of a basket of goods and
services relative to base year price and observation year quantity it is commonly referred to as the
current weighted index.

Advantages

1, takes into consideration consumption pattern by using current quantities

2, Is not upward biased in terms of price increases compared to the laspeyres price index

Disadvantages

1, data on the current weights can be difficult to obtain

2, Tends to understate the changes in price because the index already reflects changes in
consumption patterns when consumers respond to price changes
FISHER PRICE INDEX

It is also called the fisher ideal price index ,

Is the consumer price index used to measure the price level of goods and services over a given
period , The fisher price index is a geometric average of the laspeyres price index and the paasche
price index. It is ideal price index as it corrects the positive price bias in the laspeyres price index
and negative price bias in the paashe price index

QUESTION 3Define time series and outline it's components

Define time series and identify it's components.

Time series refers to the arrangement of data in accordance with their time of occurrence . It is the
chronological arrangement of data. Here, time is just a way in which one can relate the entire
phenomenon to suitable reference points. Time can be hours, days, months or years.

A time series depicts the relationship between two variables. Time is one of those variables and the
second is any quantitative variable. It is not necessary that the relationship always shows increment
in the change of the variable with reference to time. The relation is not always decreasing too.It may
be increasing for some and decreasing for some points in time. The temperature of a particular city
in a particular week or a month is one of those examples.

Uses of Time Series

The most important use of studying time series is that it helps us to predict the future behaviour of
the variable based on past experience.

It is helpful for business planning as it helps in comparing the actual current performance with the
expected one.

From time series, we get to study the past behaviour of the phenomenon or the variable under
consideration.We can compare the changes in the values of different variables at different times or
places, etc.

Components for Time Series

The various reasons or the forces which affect the values of an observation in a time series are the
components of a time series. The four categories of the components of time series are:

 Trend
 Seasonal Variations
 Cyclic Variations
 Random or Irregular movements

Trend

The trend shows the general tendency of the data to increase or decrease during a long period of
time. A trend is a smooth, general, long-term, average tendency. It is not always necessary that the
increase or decrease is in the same direction throughout the given period of time.
It is observable that the tendencies may increase, decrease or are stable in different sections of time.
But the overall trend must be upward, downward or stable. The population, agricultural production,
items manufactured, number of births and deaths, number of industry or any factory, number of
schools or colleges are some of its example showing some kind of tendencies of movement.

There are three types of trends, namely, Upward Trend, Downward Trend, and Sideway Horizontal
Trend. Upward Trend is where the sales numbers are in growth rate, and this is also known as the
bull in the stock market.

The time series trend showing the sales of coca cola over some years.

Sales ($00)

Time(years)

Downward Trend is where the sales numbers are on a fall. This is quoted as Bearish in the stock
market. If sales are in tradeoff position, it implies the undergoing Trend is Sideway Horizontal. There
will be no significant change, and the growth rate stands still.

Seasonal
Variations

Seasonality
denotes
periodic
fluctuations
in specific
business
areas that
occur
regularly
based on a
particular season. Seasons can be referred to as calendar seasons such as summer, winter, fall, and
commercial season also such as the holiday season is included in this list.Seasons significantly impact
businesses, and henceforth it is a must to take note of the seasonal changes to predict future sales
numbers.
The diagram below shows the sales of jackets during winter and summer.

Sales ($)

The

upswings represents the increase in sales of jackets in winter and downswings represent a decline in
sales of jackets in summer.

Cyclic Variations

The variations in a time series which operate themselves over a span of more than one year are the
cyclic variations. This oscillatory movement has a period of oscillation of more than a year. One
complete period is a cycle. This cyclic movement is sometimes called the ‘Business Cycle’.

It is a four-phase cycle comprising of the phases of prosperity, recession, depression, and recovery.
The cyclic variation may be regular are not periodic. The upswings and the downswings in business
depend upon the joint nature of the economic forces and the interaction between them.
Random or Irregular Movements

There is another factor which causes the variation in the variable under study. They are not regular
variations and are purely random or irregular. These fluctuations are unforeseen, uncontrollable,
unpredictable, and are erratic. These forces are earthquakes, wars, flood, famines, and any other
disasters.

Question 4

*Identify and describe time series trends and moving averages*

Time series analysis can be used to analyse historic data and establish any underlying trend and
seasonal variations within the data. The trend refers to the general direction the data is heading in
and can be upward or downward. The seasonal variation refers to the regular variations which exist
within the data. This could be a weekly variation with certain days traditionally experiencing higher
or lower sales than other days, or it could be monthly or quarterly variations.
Trend(T)- reflects the long-term progression of the series. A trend exists when there is a persistent
increasing or decreasing direction in the data. The trend component does not have to be linear

Cyclic ( C) reflects repeated but non-periodic fluctuations. The duration of these fluctuations is
usually of at least two years

Seasonal(S)-reflects seasonality present in the Time Series data, like demand for flip flops, will be
highest during the summer season. Seasonality occurs at a fixed period of time could be weekly,
monthly, quarterly

Random(R) -reflects random or irregular influences. This is residual after we have removed all other
components from time-series data

The trend and seasonal variations can be used to help make predictions about the future – and as
such can be very useful when budgeting and forecasting.Time series is a collection of sequence of
values with equally spaced time intervals. We can analyze the time series data to identify the
underlying pattern to make the predictions.

Time series data is different in terms of

Time-based dependency. Observations are not independent of each other but current observation
will be dependent on previous observations. Today’s temperature cannot be predicted
independently but is dependent on yesterday’s weather conditions
 A moving average is a technical indicator that market analysts and investors may use to determine
the direction of a trend. It sums up the data points of a financial security over a specific time period
and divides the total by the number of data points to arrive at an average. It is called a “moving”
average because it is continually recalculated based on the latest price data.
Analysts use the moving average to examine support and resistance by evaluating the movements
of an asset’s price. A moving average reflects the previous price action movement of a security.
Analysts or investors then use the information to determine the potential direction of the asset

price. It is known as a lagging indicator because it trails the price action of the underlying asset to
produce a signal or show the direction of a given trend.