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CBSE 2014 Class 12 Economics Delhi Set-1

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Question : 19 of 19
Marks: +1, -0
Outline the steps required to be taken in deriving saving curve from the given consumption curve. Use diagram.
Solution:  
The following figure, is the consumption curve. The 45∘45^{\circ} line is the aggregate supply curve. At point A, consumption = income i.e., (Y=C)(Y=C) represents the autonomous consumption i.e., consumption at zero level of income. Steps for derivation of supply curve from consumption curve is as follows :
(i) Corresponding to in the consumption function we have-in the saving function. That is, there are negative savings equal to autonomous consumption at Y=0Y=0. This is represented by SS on the negative axis in the lower panel.
(ii) At point A(Y=C)A(Y=C). This implies that all the income is spent on consumption expenditure.
Thus savings equal to zero. This is shown as SS =0=0 in lower panel. This point is also known as the Break-even point.
(iii) Beyond the break-even point, by connecting points SS and BB we derive the straight upward sloping saving curve.
(iv) SSSS is the required saving curve.
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