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Examples 6.9.2(ii) · Example 11
Q.

Given below are the consumer price index numbers (CPI) of the industrial workers.

Year2014201520162017201820192020
Index Number145140150190200220230

Find the best fitted trend line by the method of least squares and tabulate the trend values.

Sikkim CbseNCERTSubjective· 5mImportance★★★★★
78% · 31/40 Questions
✓ Free question

Fit y^=a+bx\hat y=a+bx by least squares with xx deviations from the middle year 2017; a=182.14, b=16.61a=182.14,\ b=16.61, giving the tabulated trend values.

y^=a+bx,a=∑yn,b=∑xy∑x2(since ∑x=0)\hat y=a+bx,\qquad a=\frac{\sum y}{n},\qquad b=\frac{\sum xy}{\sum x^2}\quad(\text{since }\sum x=0)

where xx = deviation of the year from the middle year, yy = CPI, nn = number of years.

  1. Set up the table with xx measured from the middle year 2017 (so ∑x=0\sum x=0):
Yearyyxxx2x^2xyxy
2014145−3-39−435-435
2015140−2-24−280-280
2016150−1-11−150-150
201719000000
2018200111200200
2019220224440440
2020230339690690
Total1275\mathbf{1275}0028\mathbf{28}465\mathbf{465}
  1. Compute the constants: a=∑yn=12757=182.14a=\dfrac{\sum y}{n}=\dfrac{1275}{7}=182.14 and b=∑xy∑x2=46528=16.61b=\dfrac{\sum xy}{\sum x^2}=\dfrac{465}{28}=16.61.

  2. Trend line: y^=182.14+16.61 x\hat y = 182.14 + 16.61\,x (with xx from 2017).

  3. Tabulate the trend values by substituting each xx:

Yearxxy^=182.14+16.61x\hat y = 182.14 + 16.61x
2014−3-3182.14−49.82=132.32182.14-49.82=132.32
2015−2-2182.14−33.21=148.93182.14-33.21=148.93
2016−1-1182.14−16.61=165.54182.14-16.61=165.54
201700182.14182.14
201811198.75198.75
201922215.36215.36
202033231.96231.96
  1. Check: the trend values sum to 7×182.14=1275=∑y7\times182.14=1275=\sum y, confirming the fit.
Note

The textbook's printed solution mis-adds the index column as ∑y=1065\sum y = 1065; the seven values 145,140,150,190,200,220,230145,140,150,190,200,220,230 actually total 12751275. Using the wrong sum, the book obtains a=152.1a=152.1 and the line y=152.1+16.6xy=152.1+16.6x. The correct intercept is a=∑yn=12757=182.14a=\dfrac{\sum y}{n}=\dfrac{1275}{7}=182.14 (the slope b=16.61b=16.61 is unaffected and matches the book), which gives the trend line and values above.

✓Final answer

Best-fit trend line y^=182.14+16.61 x\hat y = 182.14 + 16.61\,x (xx measured from 2017); trend values: 2014 = 132.32, 2015 = 148.93, 2016 = 165.54, 2017 = 182.14, 2018 = 198.75, 2019 = 215.36, 2020 = 231.96.

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