Outline the steps taken in deriving consumption curve from the saving curve. Use diagram.
or
Explain the steps taken in derivation of consumption
curve from saving curve. Use diagram.
Steps taken for derivation of consumption curve are:
(i) At zero level of income, the savings are O\overline{S} which is the amount of autonomous consumption at Y= 0. So, -O\overline{S} = O\overline{C}. Hence, the consumption will start from the point \overline{C}.
(ii) 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) The consumption curve is derived meeting C and B and extending it forward.
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Both the diagram and explanation are extremely wrong .please check the correct one and then upload on internet.