The Consumer Price Index (CPI):
A)Is an example of an index that uses variable expenditure weights
B)Is a fixed-expenditure-weight index used to measure changes in the GDP Deflator
C)Is a fixed-expenditure weight-index used to measure changes in purchasing power for households
D)Is the least commonly used measure of inflation

Question

Quizplus · Accepted Answer

The CPI is a fixed-expenditure-weight index used to measure changes in purchasing power for households. This means that it reflects the average price changes for a fixed basket of goods and services that are weighted according to their importance in the typical consumer's budget. Option A is incorrect as it describes a variable expenditure weight index, which is not what the CPI is. Option B is also incorrect as the GDP deflator measures changes in the level of prices for all goods and services produced domestically, not just those purchased by households. Finally, option D is incorrect as the CPI is actually one of the most commonly used measures of inflation, along with the GDP deflator and the Producer Price Index.