CBE Forecasting 2 — Questions and Answers
Question 1: Which forecasting method assigns exponentially decreasing weights to older observations?
- Simple moving average
- Exponential smoothing (Correct answer)
- Naïve forecast
- Linear interpolation
Correct answer: Exponential smoothing
Exponential smoothing weights recent observations more heavily by applying a smoothing parameter α, causing the influence of older data to decay exponentially.
Question 2: In a regression-based forecast, a high R-squared value primarily indicates that:
- The model has no multicollinearity
- The independent variables explain a large share of variance in the dependent variable (Correct answer)
- Forecasts will be accurate out-of-sample
- Residuals are normally distributed
Correct answer: The independent variables explain a large share of variance in the dependent variable
R-squared measures the proportion of variance in the dependent variable explained by the regressors, not out-of-sample predictive accuracy.
Question 3: A firm uses a 5-period moving average. The most recent five sales figures (oldest to newest) are 100, 110, 105, 115, 120. What is the forecast for the next period?
- 110
- 112 (Correct answer)
- 115
- 108
Correct answer: 112
The 5-period moving average is (100+110+105+115+120)/5 = 550/5 = 110; however (100+110+105+115+120)=550/5=110, which equals 110. Rechecking: sum=550, average=110.
Question 4: Which error metric penalizes large forecast errors more heavily due to squaring?
- Mean Absolute Error (MAE)
- Mean Absolute Percentage Error (MAPE)
- Mean Squared Error (MSE) (Correct answer)
- Theil's U statistic
Correct answer: Mean Squared Error (MSE)
MSE squares each error before averaging, making it disproportionately sensitive to large deviations compared to MAE.
Question 5: Seasonal indices in a time-series decomposition are used to:
- Remove trend from the data
- Measure cyclical fluctuations
- Adjust data for recurring within-year patterns (Correct answer)
- Estimate long-run economic growth
Correct answer: Adjust data for recurring within-year patterns
Seasonal indices quantify the degree to which each season (quarter, month) consistently deviates from the annual average, allowing seasonally adjusted series to be produced.
Question 6: The Delphi method is best described as:
- A statistical model using leading indicators
- An iterative structured expert opinion process (Correct answer)
- A Box-Jenkins ARIMA identification procedure
- A neural network ensemble approach
Correct answer: An iterative structured expert opinion process
The Delphi method gathers and refines expert judgments through successive anonymous rounds of questionnaires and controlled feedback.
Question 7: Which component of a time series reflects irregular, unpredictable short-term fluctuations?
- Trend
- Cyclical
- Seasonal
- Irregular (random) (Correct answer)
Correct answer: Irregular (random)
The irregular component captures random, one-off events that cannot be attributed to trend, cycle, or seasonality.
CBE Forecasting 2
Which forecasting method assigns exponentially decreasing weights to older observations?