Which of the following would tend to decrease forecast accuracy in economics?

• A. An increase in the volatility of key economic variables
• B. Improved statistical modeling techniques
• C. Access to more reliable historical data
• D. A stable and predictable economic environment

Answer: (A)

Verified step by step guidance

1. Step 1: Understand the concept of forecast accuracy in economics, which refers to how closely economic predictions match actual outcomes.
2. Step 2: Recognize that forecast accuracy depends on the stability and predictability of the variables being forecasted; more stable variables generally lead to better forecasts.
3. Step 3: Analyze how an increase in the volatility of key economic variables affects forecast accuracy. Volatility means greater fluctuations and unpredictability, which typically make forecasting more difficult and less accurate.
4. Step 4: Contrast this with factors that improve forecast accuracy, such as improved statistical modeling techniques, access to more reliable historical data, and a stable economic environment, all of which help reduce uncertainty.
5. Step 5: Conclude that among the options, an increase in volatility tends to decrease forecast accuracy because it introduces more uncertainty and unpredictability into the economic variables being forecasted.