When measuring GDP, we classify expenditures into four categories because:

• A. It ensures that only domestic production is counted.
• B. It prevents double counting of imports and exports.
• C. It allows us to exclude government spending from GDP calculations.
• D. It helps distinguish the different sources of demand in the economy.

Answer: (D)

Verified step by step guidance

1. Step 1: Understand that GDP (Gross Domestic Product) measures the total value of all final goods and services produced within a country during a specific period.
2. Step 2: Recognize that expenditures are classified into four main categories: Consumption (C), Investment (I), Government Spending (G), and Net Exports (NX), where NX = Exports (X) - Imports (M).
3. Step 3: Know that this classification helps economists identify the different sources of demand driving the economy, such as households, businesses, government, and foreign buyers.
4. Step 4: Realize that by separating these categories, we avoid double counting and ensure that only domestic production is included, but the primary reason is to analyze the components of aggregate demand.
5. Step 5: Conclude that the classification into four categories is essential because it helps distinguish the different sources of demand in the economy, providing a clearer picture of economic activity.