question_answer

Outline the steps taken in deriving Consumption Curve from the Saving Curve. Use diagram.

Answer:

Before deriving consumption curve from saving curve we should know the following:

(i) \[Y=C+S\]

\[\therefore \] \[S=Y-C\]

(ii) C = Autonomous consumption + That part of income which is consumed, as such.

When C is positive, saving is negative and when C = Y, S = 0

(iii) On the basis of this information, we can draw consumption curve and saving curve as shown in the diagram.

In the diagram, SS is saving curve. At OS level of income C = Y, therefore S is zero. Beyond that SS becomes positive.

When SS is positive consumption is less than income and the part of consumption curve is MC.