Question

How does the CPI provide an accurate indication of inflation within a country? A)The CPI uses a calculation to indicate how consumers spend more money on inferior goods as income rises. B) The CPI involves the calculation of price changes in the purchase of luxury items to indicate inflation. C) The CPI measures the average change over time in the selling prices received by domestic producers for their output using start and end dates. D) The CPI measures urban household spending on a "market basket" in a calculation to see how the average prices of goods and services have changed over time.

Answer 1

D) The CPI measures urban household spending on a "market basket" in a calculation to see how the average prices of goods and services have changed over time.

Step-by-step explanation:

This market basket developed by the U.S. Bureau of Labor Statistics uses expenditures from average households in an urban area to evaluate the rise in prices paid in the marketplace. It is a solid indicator of inflation and the effectiveness of government policies.

Answer 2

D) The CPI measures urban household spending on a "market basket" in a calculation to see how the average prices of goods and services have changed over time.

Step-by-step explanation:

The CPI measures the change in prices of the most-often consumed goods and services in an economy: food, clothing, gasoline, utility bills.

However, the CPI does not fully measure inflation in an economy, and some other measures are used in other context, for example, the GDP Deflator, which calculates the price change of all goods and services in the economy, or core price indices, which only compute the change in price of a few primary goods.