What does the Consumer Price Index (CPI) measure?

The Consumer Price Index (CPI) is a key economic indicator that measures changes in the price level of a basket of goods and services that consumers typically purchase. By tracking the cost of this basket over time, the CPI provides insights into inflation or deflation within an economy. It reflects the average change over time in the prices paid by urban consumers for a representative sample of these goods and services, which can include items such as food, clothing, rent, and transportation costs.

This measurement is crucial for economic analysis and policymaking because it impacts monetary policy, social security, and wage adjustments. For example, if the CPI rises, it indicates that the purchasing power of consumers is decreasing due to higher prices, leading to adjustments in interest rates or government policies aimed at stabilizing the economy.

The other options represent unrelated economic concepts. Market volatility refers to the fluctuations in asset prices and does not directly relate to consumer prices. The unemployment rate measures the percentage of the labor force that is unemployed and does not provide information about price changes. The balance of trade focuses on the difference between a country's exports and imports, which is also distinct from consumer price measurement. Thus, the selection of the correct option highlights a fundamental aspect of inflation measurement and the economic impacts tied to