Which measure tracks changes in the average price level that households pay for a basket of goods and services over time?

• A. Producer Price Index (PPI)
• B. Consumer Price Index (CPI)
• C. GDP Deflator
• D. Personal consumption expenditures price index (PCE)

Answer: (B)

Tracking how much households pay for a fixed set of goods and services over time shows how the cost of living changes. This is captured by the Consumer Price Index. It uses a representative basket of items that households buy and compares the total price of that basket from one period to another, yielding a measure of inflation that reflects changes in out-of-pocket expenses faced by consumers.

The other measures look at different price dynamics: the Producer Price Index tracks prices received by sellers at the wholesale level, not what households pay; the GDP deflator covers all final goods and services produced domestically, not a fixed consumer basket; the Personal Consumption Expenditures price index is a related consumer-focused measure with a broader or differently weighted basket. But the description given best matches the CPI.