CPI Measures Price Changes in a Fixed Basket

Steps:

• Recall that CPI tracks inflation by monitoring price shifts in everyday items.
• Examine each option to match the official definition of CPI as a price index.
• Eliminate choices focusing on living standards, spending habits, or all prices.
• Confirm the best fit describes average price changes in a representative basket over time.

Why C is correct:

• CPI is defined as the average percentage change in prices of a fixed basket of goods and services consumed by households, calculated as (current basket cost / base year cost) × 100.

Why the others are wrong:

• A: CPI measures price changes, not direct changes in living standards, which depend on income and other factors.
• B: CPI uses a fixed basket, not dynamic shifts in household spending patterns.
• D: CPI covers only a selected basket of consumer goods, not the entire economy's prices.

Final answer: C