Question

The number of averaging period in the simple moving average method of forecasting is increased for greater smoothing but at the cost of

• A. Accuracy
• B. Stability
• C. Visibility
• D. Responsiveness to changes

Answer 1

Answer:

D. Responsiveness to changes

Increasing the number of averaging periods in the simple moving average method of forecasting results in greater smoothing. However, it comes at the cost of responsiveness to changes as it treats past observations equally and ignores preceding ones. The simple exponential smoothing model is superior as it places more weight on recent observations, making it more responsive to changes occurring in the recent past.