1.

State the merits and limitations of the method of least squares.

Answer»

The merits and limitations of the least squares method of fitting the linear trend are as follows:

Merits:

  • This method of determining the trend of the time series is mathematically more compact than the graphical method.
  • In this method the estimates of the trend values for all the terms of the time series can be obtained.
  • From the equation of linear trend of the time series, we can forecast the variable quantity yt for any value of t.

Limitations:

  • This method of determining the trend of the time series is difficult than the graphical method from the calculation view point.
  • If there is lack of linear trend in the time series, this method is not useful for fitting the linear trend.


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