What Is the Advantage of the Standard Deviation Over the Average

question 43

Multiple Choice

What is the advantage of the standard deviation over the average deviation?

• A) Because the standard deviation requires squaring of deviations before further computation, positive and negative deviations do not cancel out.
• B) Because the standard deviation does not require squaring of deviations, it is easy to tell whether deviations are positive or negative.
• C) The standard deviation removes the units from the calculation, and delivers a pure number.
• D) The standard deviation expresses the average deviation in percentage terms, so that different choices can be more easily compared.
• E) The standard deviation transforms subjective probabilities into objective ones so that calculations can be performed.

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Definitions:

Lending

The act of providing funds to another party with the expectation that the funds will be repaid, often with interest, over a specified period of time.

Excess Reserves

Funds that banks hold over and above the legal requirements, which can influence their ability to lend.

Deposits

Funds placed into an account at a financial institution for safekeeping and to earn interest.

Excess Reserves

Excess reserves are the funds that banks hold over and above the required minimum reserves mandated by central banking regulations, often stored in central banks.