CPI Measures Cost of Living Steps:

• Define CPI as the index tracking average price changes for a fixed basket of consumer goods and services.
• Recognize that a fall in CPI signals overall price deflation.
• Link deflation directly to reduced purchasing power needs, lowering the cost of living.
• Eliminate unrelated factors like wages, spending, or government actions that don't inherently cause or result from CPI changes.

Why C is correct:

• CPI is explicitly designed to measure changes in the cost of living; a decrease reflects lower prices for the same basket, reducing living expenses.

Why the others are wrong:

• A: Wages often remain sticky and may not decrease with falling prices.
• B: Consumer expenditure could rise due to increased real income from lower prices.
• D: Government expenditure influences aggregate demand but isn't required for CPI to fall.

Final answer: C