Question

Outline the steps required to be taken in deriving the consumption curve from the given saving curve. Use diagram.

Answer 1

Given Saving Curve SS'

(i) Draw a 45^o line from the origin.

(ii) Take OC equal to OS on the Y-axis.

(iii) Draw a perpendicular line from B to B’ on OX- axis which intersect 45^o line at point B.

(iv) Join C and B and extend t to get consumption curve CC’.

Detailed Answer:

Steps:

(i) SS' is the given S-curve. Draw a 45^o line from origin

(ii) Take OC equal to OS on the Y-axis.

(iii) Draw a perpendicular (or line parallel to the Y-axis) from B₁ till it intersects the 45^o line at B.

(iv) Join C and B and extend the same to get C-curve.