The following table presents data on three leading indicators for a three-month

Question

The following table presents data on three leading indicators for a three-month period. Construct the composite index (with each indicator assigned equal weight) and the diffusion index.

Month      Leading Indicator A     Leading Indicator B     Leading Indicator C

1                         100                           200                              30

2                         110                           230                              27

3                         120                           240                              33

Just construct the diffusion index from month 2 to 3. In this problem, we have three leading indicators. The diffusion index from month 1 to 2 is 66.7 (=2/3) because two indicators move up and one moves down.

Explanation / Answer

Month Leading Indicator A Leading Indicator B Leading Indicator C Diffusion Index 1 100 200 30 2 110 230 27 3 120 240 33 Values 1 1 1 30

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