Question

Using a large value for order k in the moving averages method is effective in

a. smoothing out random fluctuations.
b. eliminating the effect of seasonal variations in the time series.
c. tracking changes in a time series more quickly.
d. providing a forecast when only the most recent time series are relevant.

Answer 1

Using a large value for order k in moving averages smooths out random fluctuations by averaging multiple data points, which highlights longer-term trends and reduces noise.

Step-by-step explanation:

The use of a large value for order k in the moving averages method is most effective in smoothing out random fluctuations. When time series data is plotted on a graph, using a simple moving average with a larger order k means that each point on the moving average line is the average of the preceding k data points. This process averages out much of the short-term variability and noise, and it highlights longer-term trends or cycles. This is especially useful when the aim is to identify or forecast underlying trends without the distraction of the random fluctuations that can occur in the short term.

For instance, in the context of unemployment rates, using a five-year average smooths the graph compared to using monthly averages. Monthly figures tend to fluctuate more due to various factors influencing the labor market in the short term. In contrast, a five-year average can more clearly indicate the overall direction in which unemployment rates are moving, by smoothing out these short-term fluctuations.

Answer 2

The correct answer is A that is smoothing out the random fluctuations.

Step-by-step explanation:

The higher values of K states the greater number of the values which need to be consider for forecasting.

When consider or taking the larger or the higher value of the irregular fluctuation which could be decreased or reduced.

And as a consequence, the large value of K will be used for smoothing of the random fluctuations.

Therefore, the right answer is smoothing of the random fluctuations.