CBE Forecasting 2

Question 1

Which forecasting method assigns exponentially decreasing weights to older observations?

Accepted Answer

Exponential smoothing

Answer

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:

Accepted Answer

The independent variables explain a large share of variance in the dependent variable

Answer

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?

Accepted Answer

112

Answer

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?

Accepted Answer

Mean Squared Error (MSE)

Answer

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:

Accepted Answer

Adjust data for recurring within-year patterns

Answer

Seasonal indices quantify the degree to which each season (quarter, month) consistently deviates from the annual average, allowing seasonally adjusted series to be produced.

(CBE) Certified Business Economist Practice Test

(CBE) Certified Business Economist Practice Test

CBE Forecasting 2