Question

4. Long-Term Forecast

Given the following data and the partial calculation in the following table:

Note: A clarification - To assign the AV multiply by 100 not 100% as the text states.

The index for each month:   

                                                                      Leading Indicator                               

                    Month       1          2          3          4          5          6          7          8         Diffusion Index

                        1          20        50        30        30        50        30        20        30

                        2          20        60        30        40        56        40        30        20

            AV                    .5         1          ____     1          1          ___      1          0          __________

                        3          30        50        35        48        40        40        35        46

            AV                    1          ____     1          ____     0          .5         .5         1          __________

                        4          38        30        40        55        40        42        35        48          

            AV                    .5         0          .5         1          ____     1          .5         1          __________

                        5          45        40        30        64        40        42        45        35

AV                    1          ____     0          1          ____     .5         1          0          __________

6          52        46        30        34        44        50        52        42

            AV                    1          ___      .5         0          1          1          1          1          ___________

1. Calculate the diffusion index for each month starting from month 2 by filling in the blank spaces. You do not have to show every step of your calculations. (40 points)

(b) Use the results in (a) to provide the forecast on the direction of the economy by looking at the five diffusion indices and explain why.

Answer 1