Which measure tracks changes in the cost of living and is widely used to gauge inflation?

Which measure tracks changes in the cost of living and is widely used to gauge inflation?

• A. Business cycle
• B. Consumer price index (CPI)
• C. Recession
• D. Fiscal policy

Answer: (B)

The measure being tested is the one that tracks changes in the cost of living and is used to gauge inflation: the consumer price index. The CPI follows a fixed basket of goods and services that urban households typically buy. By comparing what that basket costs in the current period to its cost in a base period, the CPI shows how much the overall price level has risen or fallen. This makes it a standard yardstick for inflation and for making adjustments to wages, social benefits, and contracts. Other terms, like business cycle, recession, and fiscal policy, describe different economic ideas and actions and do not provide a direct measure of how prices are changing over time.

The measure being tested is the one that tracks changes in the cost of living and is used to gauge inflation: the consumer price index. The CPI follows a fixed basket of goods and services that urban households typically buy. By comparing what that basket costs in the current period to its cost in a base period, the CPI shows how much the overall price level has risen or fallen. This makes it a standard yardstick for inflation and for making adjustments to wages, social benefits, and contracts. Other terms, like business cycle, recession, and fiscal policy, describe different economic ideas and actions and do not provide a direct measure of how prices are changing over time.