draw a straight line consumption curve from it derive a savings curve explaining the process.

show on this diagram-

a) the level of income at which apc is equal to 1

b) a level of income atwhich aps is negative.

In the upper panel of the diagram, CC represents the consumption curve. 45° line is the line representing aggregate supply (Y). It has the property that each point on the 45° line is equidistant from both the axes. In other words, at each point on the 45° line, income is equal to consumption (Y = C).

shows the level autonomous consumption i.e. consumption at zero level of income. Corresponding to  in the consumption function, there is  in the savings function in the lower panel of the diagram. That is, at zero level of income, there is negative saving (dis-saving) equal to the level of autonomous consumption. Such dis-saving happens because even at zero level of income, some consumption expenditure (on necessary items such as food) has to be incurred for sustaining life. The consumers finance their consumption at zero level of income by borrowings.

At point A, the 45° line intersects the consumption curve i.e. at point A, Income = Consumption. This implies that at point A, whole of the income is spent on consumption, therefore saving is zero. This point is known as break-even point. The corresponding point in the lower panel is point B represents zero level of savings (S = 0).

i. The point where APS is negative are the points that lie to the left of the point A. Here, consumption is greater than income, which implies that saving is negative. Thereby, APS given as () is negative.

ii. The point where APC is equal to 1 is the Break-even point. Here, the consumption is equal to Income (C = Y). Thereby, APC given as () is equal to one.

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