question_answer

Given a consumption curve, outline the steps required to be taken in deriving a saving curve from it. Use diagram.

Answer:

In the above diagram:

CC = Consumption function

\[OI={{45}^{o}}\] degree line showing income drawn from the origin O.

B = Breakeven point where consumption = income, i.e, a point where there is no saving.

Following are the steps used in drawing saving curve from consumption function:

(1) Take a point B on consumption curve and from it draw a perpendicular on x-axis intersecting it a point Bi.

(2) Take OS on Y-axis of lower part as equal to OC (OS = OC). This gives point S from where saving curve will start.

(3) Join points S and B, and extend the straight line onward and thus we get saving curve\[S{{B}_{1}}\,\,{{S}_{1.}}\]

In this way saving curve is diagrammatically drawn from consumption curve.