What does the Consumer Price Index (CPI) measure?

The Consumer Price Index (CPI) is a critical economic indicator that specifically measures the average change over time in the prices paid by consumers for a market basket of consumer goods and services. This includes a broad range of items, such as food, clothing, rent, health care, and transportation, among others. By tracking these price changes, the CPI provides valuable insights into inflation trends, the cost of living, and purchasing power, making it a vital tool for policy makers, economists, and businesses.

Choosing this option reflects an understanding that the CPI directly relates to consumer expenditures and how pricing in the economy affects consumers on a daily basis. It informs monetary policy and economic planning by illustrating how inflation impacts different sectors of the economy.

In contrast, the other options either pertain to different economic facets or do not specifically relate to consumer pricing. Unemployment rates focus on labor market conditions and job availability, while changes in aggregate demand concentrate on overall spending in the economy rather than just consumer prices. Productivity of labor analyzes efficiency within the workforce, which is entirely separate from pricing measures.