Professional Documents
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True/False
1. A time series is a collection of data recorded over a period of time, usually monthly, quarterly, or
yearly.
Answer: True Difficulty: Easy Goal: 1 AACSB: AS
2. Long-term forecasts are usually from one year to more than 10 years into the future.
Answer: True Difficulty: Easy Goal: 1
3. A forecast is necessary to plan for the raw materials, production facilities, and staff required to meet
estimated future demands.
Answer: True Difficulty: Easy Goal: 1
4. One component of a time series is the secular trend that is the smooth movement of a series over a
short period of time, such as a few months or quarters.
Answer: False Difficulty: Easy Goal: 1 AACSB: AS
6. One component of a time series is cyclical variation. An example of cyclical variation is the business
cycle that consists of periods of prosperity followed by periods of recession, depression, and recovery.
Answer: True Difficulty: Easy Goal: 1 AACSB: AS
8. In a time series analysis, the letter "a" in the linear trend equation is the value of when t = 0.
Answer: True Difficulty: Easy Goal: 2
9. In the linear trend equation, the letter "b" is the average change in t for each change of one unit (either
increase or decrease) in Y.
Answer: False Difficulty: Easy Goal: 2
11. In a linear trend equation, t is a coded value that corresponds with a time period in a time series.
Answer: True Difficulty: Easy Goal: 2 AACSB: AS
12. The least squares method of computing the equation for a straight line going through the data of
interest gives the "best fitting" line.
Answer: True Difficulty: Easy Goal: 2
13. If the sales, production or other data over a period of time tend to approximate a straight-line trend,
the equation developed by the least squares method cannot be used to forecast sales for a future period.
Answer: False Difficulty: Easy Goal: 2
14. The moving average method merely smoothes out the fluctuations in the data.
Answer: True Difficulty: Easy Goal: 3 AACSB: AS
15. The moving average method averages out seasonal and irregular components.
Answer: True Difficulty: Medium Goal: 3
16. To apply the moving average method to a time series, the data should follow a linear trend and have a
definite rhythmic pattern of fluctuations that repeat (say, every three years).
Answer: True Difficulty: Medium Goal: 3
17. Sales, production and other economic and business series usually have periods of oscillation that are
of equal length or identical amplitudes.
Answer: False Difficulty: Medium Goal: 3
18. A straight-line trend equation is used to represent the time series when it is believed that the data is
increasing (or decreasing) by equal amounts, on the average, from one period to another.
Answer: True Difficulty: Easy Goal: 2
19. Data that increases by increasing amounts over a period of time appear curvilinear when plotted on
paper having an arithmetic scale.
Answer: True Difficulty: Medium Goal: 4
21. A typical monthly seasonal index of 107.0 indicates that sales (or whatever the variable is) for the
corresponding month is 107 percent above the annual average.
Answer: False Difficulty: Easy Goal: 6 AACSB: AS
22. A typical monthly seasonal index of 121.0 indicates that sales (or whatever the variable is) for the
corresponding month is 21 percent above the annual average.
Answer: True Difficulty: Easy Goal: 6
23. Each typical seasonal index is a percent with the average for the year equal to 100.
Answer: True Difficulty: Easy Goal: 6
24. The ratio-to-moving-average method eliminates the seasonal, cyclical and irregular components from
the original data (Y).
Answer: True Difficulty: Easy Goal: 6
25. The trend component of a time series is obtained by minimizing the sum of the squares of the errors.
Answer: True Difficulty: Easy Goal: 6
26. The cyclical component of a time series is described in terms relative to the seasonal index.
Answer: False Difficulty: Easy Goal: 6
28. The ratio-to-moving average method removes the trend component from a monthly time series,
resulting in 12 numbers that are called specific seasonals.
Answer: False Difficulty: Easy Goal: 6
29. For a monthly time series, the initial step, using the ratio-to-moving average method, is to remove the
seasonal and irregular components from the time series using a 12-month moving average.
Answer: False Difficulty: Easy Goal: 6
30. In the ratio-to-moving-average procedure, using the median or modified mean eliminates trend.
Answer: False Difficulty: Medium Goal: 6
32. When estimating the specific seasonals for a monthly time series, the sum of the 12 modified means
should theoretically be equal to 1,200 because the average of the 12 specific seasonals is designated as
100.
Answer: True Difficulty: Medium Goal: 6
33. The reason for deseasonalizing a sales series is to remove trend and cyclical fluctuations so that we
can study seasonal fluctuations.
Answer: False Difficulty: Easy Goal: 7
34. The reason for deseasonalizing a time series is to remove seasonal fluctuations so that we can
estimate trend and cyclical fluctuations.
Answer: True Difficulty: Easy Goal: 7 AACSB: CA
35. Using the ratio-to-moving-average method, dividing the actual sales for a month by the typical
seasonal for that month results in a figure that includes only trend, cycle and irregular fluctuations. This
procedure is called deseasonalizing the sales.
Answer: True Difficulty: Easy Goal: 7
36. Seasonal variation is quite common in many industries, especially in the retail and tourism.
Answer: True Difficulty: Easy Goal: 6
37. An analysis of past seasonal fluctuations can be helpful in planning production for items such as toys,
dolls, Easter eggs, and other holiday-oriented goods.
Answer: True Difficulty: Easy Goal: 5
38. Knowing the seasonal pattern in the form of indexes allows the retailer to deseasonalize sales. This is
accomplished by dividing the actual sales for a month by the typical index for that month.
Answer: True Difficulty: Easy Goal: 7 AACSB: AS
39. A typical seasonal index of 103.7 for January indicates that sales for January are below the annual
average.
Answer: False Difficulty: Easy Goal: 5
40. The total of the four typical quarterly indexes should equal 100.0.
Answer: False Difficulty: Medium Goal: 7
44. Autocorrelation occurs with successive observations over time are correlated.
Answer: True Difficulty: Hard Goal: 8
Multiple Choice
46. What is variation within a year, such as high sales at Christmas and Easter and low sales in January,
called?
A) Secular trend
B) Seasonal variation
C) Cyclical variation
D) Variation
Answer: B Difficulty: Easy Goal: 1 AACSB: AS
47. The merchants in Dallas, Texas, suffered flood damage in May 2003. Stores were closed for
remodeling nearly two months. What is this type of variation in sales called?
A) Secular trend
B) Seasonal variation
C) Cyclical variation
D) Episodic variation
Answer: D Difficulty: Easy Goal: 1
49. The following linear trend equation was developed for annual sales from 1995 to 2001 with 1995 the
base or zero year. = 500 + 60t (in $ thousands). What are the estimated sales for 2005 (in $
thousands)?
A) $ 500
B) $ 560
C) $1,040
D) $1,100
Answer: D Difficulty: Medium Goal: 2 AACSB: AS
50. The following linear trend equation was developed for the annual sales of the Jordan Manufacturing
Company. = 500 + 60t (in $ thousands). How much are sales increasing by?
A) $ 60,000 per year
B) $ 6,000 per month
C) $ 500,000 per year
D) $ 6,000 per year
Answer: A Difficulty: Medium Goal: 2
51. If the least squares equation for sales data going from 2000 to 2004 is = 10 + 1.3t (in $ millions),
what is the value of t and the forecast for 2006?
A) t = 6, y = 17.8
B) t = 0, y = 10.0
C) t = 7, y = 19.1
D) t = 10, y = 0.0
Answer: C Difficulty: Medium Goal: 2
52. What is the formula for "a" in the least squares trend equation using the coded method?
A)
B)
C)
D) X times Y
Answer: A Difficulty: Medium Goal: 2
54. If the exports (in $ millions) for the period 2000 through 2004 were $878, $892, $864, $870 and $912
respectively, what are these values called?
A) Moving average
B) Linear trend equation
C) Logarithmic trend equation
D) Time series data
Answer: D Difficulty: Medium Goal: 1
55. What is the long-term behavior of a variable over an extended period of time called?
A) Secular trend
B) Seasonal variation
C) Cyclical variation
D) Irregular or erratic variation
Answer: A Difficulty: Medium Goal: 1
57. Why are long range predictions considered essential to managing a firm?
A) To develop plans for possible new plants
B) To have raw materials available for future demand
C) To develop plans for future financing
D) To have enough staff for future needs
E) All of the above
Answer: E Difficulty: Medium Goal: 1
60. The crash of the telecommunications industry in 2000 exerted an impact on the economy that could
be classified as:
A) Secular trend
B) Episodic variation
C) Residual variation
D) Seasonal variation
Answer: B Difficulty: Medium Goal: 1
61. In the linear trend equation which variable represents the average change in the dependent variable
for every unit change in time?
A) a
B) b
C) t
D)
Answer: B Difficulty: Medium Goal: 2
62. For a time series beginning with 1988 and extending up to 2007, which year would be coded with a
one when using the coded method?
A) 1986
B) 1988
C) 1989
D) 1998
Answer: B Difficulty: Medium Goal: 2
64. Given the trend equation = 25 + 0.6t (base year = 2003), what would be the forecast value for
2007?
A) 25
B) 28
C) 30
D) 32
Answer: B Difficulty: Medium Goal: 5
66. For a five-year moving average, how many values will be lost at the beginning and end of the time
series?
A) 0 at the start and 4 at the end
B) 3 at the start and 3 at the end
C) 2 at the start and 2 at the end
D) 0 at the start and 5 at the end
Answer: C Difficulty: Medium Goal: 3
67. A linear trend equation is used to represent time series values when the data are changing by equal?
A) Percents
B) Proportions
C) Amounts
D) Both "A" and "B" are correct
Answer: C Difficulty: Medium Goal: 2
69. Which of the following is true for the linear equation, = a + bt?
A) log a = S log / n
B) log = log a + log b(t)
C) log b = S(X log ) / t2
D) All of the above are true
E) None of the above is true
Answer: E Difficulty: Medium Goal: 4
70. Given a linear time series trend, = 5.2 + 3.1t, what is the forecast for 2006 if the time series started
in 1999?
A) 23.8
B) 26.9
C) 30.0
D) 21.7
Answer: C Difficulty: Medium Goal: 5
71. What time series component was exemplified during the 1980's when the American economy
enjoyed a period of prosperity?
A) Irregular
B) Cyclical
C) Trend
D) Seasonal
Answer: B Difficulty: Medium Goal: 1
72. What is a disadvantage of the estimating method for determining a trend line equation?
A) Provides quick approximations
B) Is subject to human error
C) Provides accurate forecasts
D) Is too difficult to calculate
Answer: B Difficulty: Medium Goal: 2
75. In a seasonal index (4 seasons) the total of the quarterly means will be
A) 4.0.
B) 1.0.
C) 100%
D) a variable.
Answer: A Difficulty: Medium Goal: 6
Fill-in-the-Blank
79. How does data that increases by equal percents over a period of time appear on arithmetic paper?
___________________
Answer: curvilinear Difficulty: Medium Goal: 4
81. For a straight trend line, what represents the amount of change in Y for each increase of one in t?
_________________________
Answer: slope of line or b Difficulty: Medium Goal: 2
82. What type of analysis predicts the future on the basis of past data?
______________________________
Answer: time series analysis Difficulty: easy Goal: 1
84. What method is used to determine the linear equation when the best fitting straight line is required?
_____________________
Answer: least squares Difficulty: Medium Goal: 2
85. What method is most commonly used to compute the typical seasonal pattern?
___________________________
Answer: ratio-to-moving-average Difficulty: Medium Goal: 6
86. If we eliminate trend, cyclical and irregular variation from a monthly sales series, what are the 12
numbers that result called? _________________________
Answer: seasonal index Difficulty: Medium Goal: 6
87. A set of typical seasonal indexes is very useful in adjusting a sales series for seasonal fluctuations.
What is the resulting sales series called? _____________________________
Answer: deseasonalized sales Difficulty: Easy Goal: 7
88. Logically, there are four typical seasonal indexes for data reported how often? __________________
Answer: quarterly Difficulty: Medium Goal: 6
89. What does a typical sales index of 96 for January indicate about sales?
___________________________________
Answer: 4% below the average for the year Difficulty: Medium Goal: 6
The least squares trend equation using the coded method is given as
= 265.12 – 21.18t, where t is set equal to one for 1999.
93. On average, how much did sales change per year from 1999 to 2007? __________
Answer: -21.18 Difficulty: Medium Goal: 2
96. What is the four-quarter moving average for the period ending with the second quarter in 2004?
_____________________
Answer: 9.5 Difficulty: Medium Goal: 5
Multiple Choice
= 920.0 + 22.6 t
Q u a rter In d ex
1 0 .7 5
2 1 .0 4
3 1 .2 1
4 1 .0 0
98. Based on the seasonal indexes, which quarter is expect to have 21% more demand than predicted by
the trend line?
A) 1
B) 2
C) 3
D) 4
Answer: C Difficulty: Easy Goal: 6
99. Based on the seasonal indexes, which quarter is expect to have 25% less demand than predicted by
the trend line?
A) 1
B) 2
C) 3
D) 4
Answer: A Difficulty: Easy Goal: 6
100. Using the trend line equation and the seasonal indexes, predict demand for the third period of the
next year, i.e., period 23.
A) 1439.8
B) 987.8
C) 1742.16
D) 1195.24
Answer: C Difficulty: Medium Goal: 6
Q u arter S a les In d ex
1 7 38 0 .7 5
2 1012 1 .0 4
3 11 9 6 1 .2 1
4 9 62 1 .0 0
Essay
105. What is the difference between seasonal and cyclical variation in a time series?
Answer: Seasonal variation occurs within one year, cyclical variation occurs over many years.
Difficulty: Medium Goal: 6