What is measured by the Consumer Price Index (CPI)?

The Consumer Price Index (CPI) is specifically designed to measure the average change in prices over time that consumers pay for a basket of goods and services. This index tracks inflation by comparing the current price level to a base year, providing insights into how much the cost of living is changing.

CPI is a vital economic indicator because it reflects the purchasing power of consumers and can influence economic policy. For example, if the CPI is rising, it might signal inflation, prompting policymakers to consider measures to control price increases.

In contrast, the other options pertain to different aspects of economics. Overall economic growth relates to metrics like Gross Domestic Product (GDP), income levels focus on wages and earnings rather than price changes, and total output of an economy again correlates more with GDP rather than the price level or inflation specifically. Therefore, the most accurate assessment of what the CPI measures is the average change in prices over time.