Chapter 14, Problem 1CR

Explain the difference between (a) stocks and flows; (b) cross-sectional and time-series data; (c) additive and multiplicative models.

To determine

Explain the difference between stocks and flows.

Explanation of Solution

Stocks:

Stocks represents the data, it will be recorded at the particular point of time.

For example, a retail company checks the inventory at every end of month.

Flows:

Flows represents the data, it will be recorded during a period or interval of time.

For example, a retail company checks the whole income for a month and it will consider the whole month income.

To determine

Explain the difference between the cross-sectional and time-series data.

Explanation of Solution

Cross-sectional data:

Cross-sectional data represents the data which is observed from the various studies at a same point of time.

Time-series data:

Time-series data represents the data which is observed over the periods of time.

To determine

Explain the difference between the additive and multiplicative models.

Explanation of Solution

Additive model:

The additive model in time series decomposes the data into four parts, such as components trend ((T), cycle (C), seasonal (S) and irregular (I)) in the form of  $Y=T+C+S+I$. Here, Y denotes the additive model.

Multiplicative model:

The multiplicative model in time series decomposes the data into four components, such as trend ((T), cycle (C), seasonal (S) and irregular (I)) in the form of  $Y=T\times C\times S\times I$. Here, Y denotes the multiplicative model.