Question

Explain the steps taken in derivation of the consumption curve from the saving curve. Use diagram.

OR

Given saving curve, derive consumption curve and state the steps in doing so. Use diagram.

Accepted Answer

The derivation of consumption curve from the saving curve is provided below:

The consumption curve is the positively sloped diagram that showcases the positive association between consumption expenditures and incomes. The consumption curve can be drawn on the basis of the saving curve.

The saving curve always begins from the negative of the y-axis because, in the beginning, the economy always makes autonomous consumption. Autonomous consumption is the mandatory consumption that is made at the zero income level. This is why the negative Y-axis, where the saving curve originates corresponds to the origination point of the consumption curve in the positive Y-axis in the consumption graph. Therefore, the point S in the saving curve corresponds the point C on Y-axis in the consumption curve.
As long as the incomes rise, the people start utilizing their incomes and the negative saving levels approach the point of zero savings. Therefore, an income level arises when the saving becomes zero. At zero savings, the consumption is equivalent to the income. The whole consumption of income resembles the equality between consumption expenditure and income. Hence, the point on the X-axis of the saving curve corresponds to point E in the consumption curve.

Gradually, the savings start increasing. These incremental savings resemble the greater value of consumption expenditure relative to the income levels. Therefore, in the meantime, the consumption curve also starts increasing in an upward direction. Hence, the consumption curve is constructed by adjoining C and E and then this curve is elated to the positive direction.

Explain the steps taken in derivation of the consumption curve from the saving curve. Use diagram.

OR

Given saving curve, derive consumption curve and state the steps in doing so. Use diagram.

Important Questions on Determination of Income and Employment

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