When calculating the Consumer Price Index (CPI), what is used to determine price changes?

The correct answer is that a fixed basket of goods is used to determine price changes when calculating the Consumer Price Index (CPI). The CPI measures the average change over time in the prices paid by urban consumers for a market basket of consumer goods and services. This fixed basket reflects the typical consumption patterns of households and includes a wide range of categories, such as food, housing, clothing, and transportation, among others.

Using a fixed basket allows for consistent tracking of price changes over time, as it provides a standard reference point. This consistency is crucial for policymakers, economists, and analysts, as it enables them to assess inflation and the overall economic health based on the changes in the prices of these essential goods and services.

Other choices present alternatives that do not accurately capture the methodology used for the CPI. The concept of "every item sold in a city" would be impractical for analysis, leading to inconsistent results due to the vast differences in prices and consumer preferences across locations. Similarly, "an estimate of consumer spending" refers more to behavioral predictions rather than the direct measurement of price changes. Focusing on "only luxury goods" would provide an incomplete view of inflation, as it neglects essential items that most consumers regularly purchase. Thus, the fixed