Time Series Analysis MBA 1st Year Semester Long Question Answer Study Notes Study Material Notes Unit Wise Syllabus Chapter Wise Notes Time Series Analysis, Concept, Additive And multiplicative models, Components of time series, Trends Analysis, Least squares Method Linear and non linear equations, applications In Business Decision-Making. Index Number Meaning, Types of Index Numbers, Uses Of Index Numbers, Construction Of Price, quantity And Volume Indices Fixed Base and Chain Base Methods.
Long Answer Questions
Q.1. Briefly explain the components of time series.
Or What is time series? Explain the various components of time series. Also discuss its importance,
Or Discuss briefly the components of a time series.
Or Differentiate between seasonal variations and cyclical fluctuations.
Or Explain the various components of a time series.
Ans. Time Series: Refer to Section-A, Q.
1.Secular Variations or Trend (T)
The general tendency of time series data to increase or decrease or stagnate during a long period of time is called the secular trend or simply trend.
The trend thus refers to the general direction and the movements of time series considering a fairly long period of time, most business and economic series are influenced by some secular forces of change in which the underlying tendency is one from growth or decline, e.g. in series concering population national income, agricultural production, currency in circulation, bank deposits, etc. and upward national income, agricultural production, currency in circulation bank deposits, etc. and upward tendency is usually observed while a downward tendency is noticed in time series relating the birth and death rates especially in deaths by epidemics, tuberculosis, etc.
II.Cyclical Variations (c)
As the economy expands during a period of boom, we would expect to find out such data as sales, output or consume
utput or consumer expenditure also show a rising trend and during a period of slump, we would expect them to show a downward trend. Thus, a wavelike motion may be observed in the pattern of our data. They are prosperity (boom), recession, depression and recovery, as shown in the given figure.
The study of cyclical variation is helpful to businessmen and economist for framing suitable policies and stabilising the level of business activities.
Purposes: The purpose of studying the cyclical variation is: fluctuations. Good policies can be formulated at
stabilising the level of business activity.
2. Businessman can take timely steps in maintaining business during booms and depressions.
3. A careful study of cyclical variations facilitates a
businessman to face the recession period and make them ready to reap the benefits during booms.
III. Seasonal Variations (S)
Seasonal variations refer to rhythmic forces of change
inherent in most time series showing a regular or a periodic pattern of movement over a span of less than a year and has the same or almost the same pattern year. after year.
‘A recurrent pattern of change within the period that results from the operation of forces connected with climate or custom at different times of the period.’
Reasons: The seasonal variation may occur due to:
1. Climate and Natural Forces: The result of natural forces like climate is causing seasonal variation. Umbrellas are sold more in rainy season. In winter season, sale of the woollen clothes will increase. In hot season, the sales of ice, icecream, fruit, salad, etc. will increase. Thus, climate and weather play an important role in seasonal movement. Agricultural production depends upon the monsoon.
2. Customs and Habits: Man-made conventions are the customs, habits, fashion, etc. There is the custom of wearing new clothes, preparing sweets and buying crackers for Deepawali, Onam, Christmas, etc. At that time, there is more demand for clothes, sweets and crackers. It will happen every year. In marriage season, the price of gold will increase.
Time Series Analysis MBA 1st Year Semester Long Question Answer Study Notes
Purposes: A study of the seasonal variation of a time series is useful for the following purposes:
1. To analyse seasonal pattern in a short-period time series.
2. Once the seasonal factor is known, it can be used for separating cyclical and irregular forces from the residual forces of changes.
3. The seasonal factor can be used for adjustment in the value projected on the basis of trend. Short-term forecasts are always affected by seasonal factors.
4. The observed value can be appraised in terms of seasonal factor and adjusted so as to get correct idea of the trend, if any, in an economic phenomenon. The study of seasonal variations is, therefore, necessary for proper appraisal of business facts influenced by a
5. The seasonal factor can also be used for pricing of articles and services so as to level up the seasonal demand.
6. A study of the seasonal pattern is extremely useful in planning future operations and in formulation of policy decisions regarding purchase, production, inventory control, personnel requirement, selling and advertising programme, etc.
IV. Irregular Variations (1) or Erratic
Irregular variations are the effect of random factors. These are generally mixed up with seaso and cyclical variations and are caused by irregular and accidental factors like floods, famines, w: strikes, lockouts, etc. There is no regular period or time of their occurrence and that is why they called random or chance fluctuations. Sometimes these factors are very effective and may even give ric to cyclical fluctuations. However, since these are not regular factors, no advance preparation can be done to meet their consequences. Their effects are also unpredictable and irregular.
Importance of Time Series Analysis: Refer to Sec-B, Q.1. Q.2. Explain the various methods for isolating trends.
Ans. Methods for Isolating Trends: The various methods for isolating trends are as follows:
1. Free-hand Method (or Graphical Method)
This is the easiest, simplest and the most flexible method of estimating secular trend. The procedure of obtaining a straight line trend by this method is given below:
1. Plot the time series on a graph.
2. Examine carefully the direction of the trend based on the plotted information (dots).
3. Draw a straight line which will best fit to the data according to personal judgement. The line now shows the direction of the trend.
To get proper trend line, we must note some points while fitting a trend line by the free-hand method:
1. The curve should be smooth.
2. Approximately there must be equal number of points above and below the curve.
3. The total deviations of the data above the trend line must be the same as the vertical
deviations below the line.
4. The sum of the squares of the vertical deviations from the trend should be as small as possible
Merits: The merits of free-hand method are as follows:
1. Free-hand method of estimating trend is the simplest method. Time and labour are saved and
for this reason they are widely used in business.
2. It is more flexible than rigid mathematical function, hence fits the curve more closely to the data.