If a firm produced a product that was experiencing growth in demand, the smoothing constant alpha (reaction rate to differences) used in an exponential smoothing forecasting model would tend to be which of the following?
A) Close to zero.
B) A very low percentage, less than 10%.
C) The more rapid the growth, the higher the percentage.
D) The more rapid the growth, the lower the percentage.
E) 50% or more.

Question

Quizplus · Accepted Answer

When demand is rapidly growing, a higher alpha is used in exponential smoothing to give more weight to recent observations, allowing the forecast to quickly adjust to changes in demand.

If a Firm Produced a Product That Was Experiencing Growth