Final answer:
The Consumer Price Index (CPI) measures inflation based on a fixed basket of goods, affecting economic decisions by U.S. policymakers. It tracks the prices paid by urban consumers but may not fully represent the true cost of living or personal experiences of all population segments.
Step-by-step explanation:
The Consumer Price Index (CPI) is a measure calculated by government statisticians at the U.S. Bureau of Labor Statistics to track the average change over time in the prices paid by urban consumers for a fixed basket of goods and services. This basket represents the purchases of the average family of four and is used as a measure of inflation. However, the CPI is not always reflective of the personal experiences of all individuals or specific groups like the elderly or single-parent families, leading to alternative indexes such as the PPI and GDP Deflator, which can offer more tailored measures of inflation for different segments of the population.
The CPI affects nearly all Americans and is a critical tool used by the president, U.S. Congress, and the Federal Reserve Board to make informed economic decisions. Despite its widespread use, the CPI has been criticized for not capturing the true change in the cost of living, which can differ from the change in the total cost of buying a fixed basket of goods and services because it does not account for the variation in personal satisfaction or utility derived from consumption.