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Question

# The moving average method is to be used for forecasting demand based on m periods of data. Two values of m are tried, m1 and m2 with m1>m2, to get two different forecasts, denoted by F(t) and G(t), respectively. (P) F(t) has less variability than G(t) (Q) Forecast error of F (t) is less than that of G(t) Which of the above statements are CORRECT?

A
Only P
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B
Both P and Q
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C
Neither P and Q
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D
Only Q
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Solution

## The correct option is B Both P and Qm1 = moving average periods give forecast F(t) m2 = moving average periods give forecast G(t) m1>m2 ∴ F(t) is a stable forecast has less variability. G(t) is a inflationary forecast and has high variability.

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