Question

What does the Consumer Price Index (CPI) primarily measure?

• A. Prices of goods at the wholesale level.
• B. Changes in the cost of living for consumers.
• C. National income of a country.
• D. Interest rates set by the Reserve Bank of India.

Hint:

CPI is a key indicator of inflation and is crucial for understanding how price changes affect household budgets and purchasing power. It directly reflects the cost of living for an average consumer.

Answer 1

The Correct Option is B

Step 1: Define the Consumer Price Index (CPI).
The Consumer Price Index (CPI) is a measure that examines the weighted average of prices of a basket of consumer goods and services, such as transportation, food, and medical care.

Step 2: Understand the purpose of CPI.
CPI is used to track changes in the price level of consumer goods and services over time. Its primary purpose is to gauge inflation and the impact of price changes on the purchasing power of consumers.

Step 3: Evaluate the given options.
(1) Prices of goods at the wholesale level: This is typically measured by the Wholesale Price Index (WPI), not CPI. CPI focuses on retail prices paid by consumers.
(2) Changes in the cost of living for consumers: This is the main function of the CPI. By tracking the prices of goods and services that consumers typically buy, it reflects how much it costs to maintain a certain standard of living.
(3) National income of a country: National income (e.g., GDP, GNP) measures the total value of goods and services produced in a country, not primarily price changes or cost of living.
(4) Interest rates set by the Reserve Bank of India: Interest rates are set by the central bank as part of monetary policy and are not directly measured by price indices like CPI.

Step 4: Conclude the correct option.
The Consumer Price Index (CPI) primarily measures changes in the cost of living for consumers by tracking the prices of a basket of goods and services.