Final answer:
The CPI market basket is based on spending patterns of urban consumers, derived from the Consumer Expenditure Survey and is crucial for measuring inflation and guiding economic policy.
Step-by-step explanation:
The composition of the market basket for the Consumer Price Index (CPI) is based on spending patterns of urban consumers in a given period. The U.S. Bureau of Labor Statistics (BLS) utilizes the Consumer Expenditure Survey, which collects detailed information from about 7,000 households, to determine the average consumption and spending habits. These habits are then categorized into eight major groups and over 200 individual item categories to accurately reflect the spending patterns of urban consumers. The CPI is a critical tool used by the government to measure inflation and guide economic decisions like monetary and fiscal policies.