CPI measures which economic phenomenon?

• A. Measures unemployment
• B. Measures inflation (increase in prices over time)
• C. Measures government revenue
• D. Measures consumer debt levels

Answer: (B)

CPI measures the change in the overall price level of goods and services that households buy, which is inflation. It uses a fixed basket of items and compares how much that basket costs now versus in a base period, producing a percentage change that indicates how prices have risen or fallen over time. For example, if the basket costs $100 in the base period and $103 this period, inflation is 3%.

This is not a measure of unemployment, which reports how many people are without work; it’s not a measure of government revenue, which reflects tax and other income for the government; and it’s not a measure of consumer debt levels, which track how much money people owe. CPI specifically focuses on price changes affecting consumers.