Future Business Leader Achievments (FBLA) Economics Practice Exam

Which economic indicator is used to measure overall price changes in the economy?

1. The GDP deflator

2. The unemployment rate

3. The Producer Price Index

4. The Consumer Price Index

The correct answer is: The Consumer Price Index

The chosen answer refers to the Consumer Price Index (CPI), which is indeed a key economic indicator for measuring overall price changes in the economy. The CPI tracks the average change over time in the prices paid by consumers for a basket of goods and services, essentially reflecting the cost of living. By comparing the CPI over different time periods, economists can assess inflation or deflation trends within an economy. The significance of the CPI lies in its broad application; it is used for adjusting income payments (like Social Security), and it serves as an inflation gauge, influencing monetary policy decisions. Therefore, it plays a crucial role in economic analysis and policymaking. Other economic indicators mentioned, such as the GDP deflator and the Producer Price Index, serve different purposes. The GDP deflator measures the price change of all goods and services included in Gross Domestic Product, while the Producer Price Index tracks changes in selling prices received by domestic producers for their output. Although these indicators also provide insights into price changes, the CPI is the definitive tool for evaluating changes that affect consumers directly and is more widely recognized in reflecting consumer experiences with inflation.