The theory of income determination is traced to

Analyze the question: It asks who is credited with the theory of income determination, which is the explanation of how the level of national income and employment is determined in an economy.

Explain the concept: The theory of income determination is a core part of macroeconomics. It explains that national income (output) is determined by aggregate demand, made up of consumption (C), investment (I), government spending (G), and net exports (X − M). This idea was developed in The General Theory of Employment, Interest and Money (1936) by John Maynard Keynes. That is why it is also called the Keynesian theory of income determination.

Go through the options:

• A. Thomas Malthus: Known for the theory of population growth (population grows geometrically, food supply arithmetically). It is not about income determination.
• B. John Maynard Keynes: Correct. He argued that aggregate demand determines income and employment, and that equilibrium is reached where aggregate demand equals aggregate supply (Y = C + I + G + (X − M)).
• C. Adam Smith: Known for The Wealth of Nations, the division of labour, and the "invisible hand". He is the father of classical economics.
• D. R. G. Lipsey: A modern economist known for his textbook An Introduction to Positive Economics. He is not the originator of this theory.
• E. Prof. Umar SI: Not associated with this theory.

Note that the option spells the name "Lord John Mynard Keynes". The correct spelling is John Maynard Keynes, but option B is clearly the intended one.

Answer: B

Exam tip: Link names to their key ideas:

• Malthus → Population
• Smith → Wealth of Nations and the division of labour
• Keynes → Income, employment and aggregate demand
• Ricardo → Rent and comparative advantage

Whenever you see "income and employment" in a macroeconomics question, think of Keynes.