Final answer:
The correct answer is option D. The Consumer Price Index (CPI) is the most commonly used tool to measure inflation in the U.S., despite potential overstatements in cost of living increases. It is focused on the spending patterns of households, and while it has biases, the CPI is still utilized as the primary inflation measure.
Step-by-step explanation:
Understanding Inflation Measurement in the United States
The measure most commonly used to track inflation in the United States is the Consumer Price Index (CPI). It is calculated by the U.S. Bureau of Labor Statistics and is based on a set basket of goods and services typical for an urban consumer. While the CPI is sometimes said to overstate cost of living increases, it remains the most frequently cited tool for measuring inflation. On the other hand, the GDP deflator also measures inflation but is not as focused on household-consumed goods and services. It tends to pick up the prices of all products produced within the economy and is thus not biased towards the consumption habits of households.
The CPI is widely accepted as a cost-of-living index because it tracks the spending patterns of households. However, it can overstate the cost of living due to biases such as substitution bias and quality/new goods bias. Though these biases can be mitigated to some extent, they cannot be fully eliminated from the CPI measure.
The correct option for the measure that is the most commonly used tool to track inflation in the United States, even though it may overstate cost of living increases, is D. CPI.