University of Toronto (UofT) MGT100 Fundamentals of Management Practice Exam

The Consumer Price Index (CPI) is the primary indicator used to measure inflation because it tracks changes in the price level of a basket of consumer goods and services over time. This index reflects how much prices have increased or decreased, indicating the purchasing power of currency. When the CPI rises, it signifies that the cost of living is increasing, which is the fundamental essence of inflation.

By monitoring the CPI, economists and policymakers can gauge the effectiveness of economic policies, understand the economic environment better, and make informed decisions to stabilize or stimulate the economy. Other indicators such as gross domestic product, employment rate, and national debt provide valuable economic insights but do not specifically measure price changes in the manner that the CPI does. Thus, the role of CPI in directly reflecting the consumer experience of inflation makes it the correct choice.