Jones Inc., a company manufacturing drills, earned a revenue of $5 million in 2011. This was 6% more than their revenue in 2009. The CPI for 2009 and 2011 was 115 and 122 respectively, while the PPI for 2009 and 2011 was 110 and 114 respectively. Which of the following accurately reflects the real growth in revenues between 2009 and 2011?
A) 6%
B) 2.65%
C) 0.28%
D) 10.25%

Question

Quizplus · Accepted Answer

Real growth in revenues can be calculated using the formula:

Real growth = (Nominal growth - Inflation rate)

Nominal growth in revenues = 6%

Inflation rate = ((CPI in 2011 - CPI in 2009) / CPI in 2009) + ((PPI in 2011 - PPI in 2009) / PPI in 2009) / 2

= ((122-115)/115) + ((114-110)/110) / 2

= 0.0265 or 2.65%

Real growth = 6% - 2.65% = 3.35%

Therefore, the real growth in revenues between 2009 and 2011 is 3.35%. Option B is the correct answer.

Jones Inc, a Company Manufacturing Drills, Earned a Revenue of $5