outline steps taken in deriving consumption curve from saving curve.use diagram.
Solution:
(i) At zero level of income, the saving is , which is autonomous consumption at Income level 0. Here = , so consumption starts from .
(ii) We will draw an income line passing through origin. We draw a 45° line passing through the origin which shows that C = Y. This is the income line.
(iii) Now, we draw a vertical line from the point E, where saving is zero. At zero level of saving, C = Y. So, B is the break-even point.
(iv) is the required consumption curve .
(i) At zero level of income, the saving is , which is autonomous consumption at Income level 0. Here = , so consumption starts from .
(ii) We will draw an income line passing through origin. We draw a 45° line passing through the origin which shows that C = Y. This is the income line.
(iii) Now, we draw a vertical line from the point E, where saving is zero. At zero level of saving, C = Y. So, B is the break-even point.
(iv) is the required consumption curve .