Draw a straight line consumption curve. From it derive a saving curve. Explain the process of derivation. Show in this diagram: (a) The point at which the Average propensity to Consume is equal to one; (b) Any point at which the Average Propensity to Save is negative.
In the given diagram, CC' Is the consumption
curve which shows autonomous consumption equal to OC at zero level of income
and consumption equal to income at OA level of income.
At zero level of income,
saving expenditure is equal to OS which is equal to autonomous consumption of
OC at that level of income. So, S is the starting point of savings curve.
At OA level of income,
consumption expenditure must be equal to OD=OA so Savings are zero at OA level of income as the whole of Income Is spent on
consumption. This gives a point A on the
savings curve.
By Joining S and A and
extending it further, we get savings curve.
(a) At point B on the
consumption curve, total consumption expenditure (C) is equal to total income
(Y). So, C/Y=1. Hence, at point B on consumption curve, APC=1
(b) Any point before A on
SS' denote negative savings and negative APS.
In the given diagram, CC' Is the consumption
curve which shows autonomous consumption equal to OC at zero level of income
and consumption equal to income at OA level of income.
At zero level of income,
saving expenditure is equal to OS which is equal to autonomous consumption of
OC at that level of income. So, S is the starting point of savings curve.
At OA level of income,
consumption expenditure must be equal to OD=OA so Savings are zero at OA level of income as the whole of Income Is spent on
consumption. This gives a point A on the
savings curve.
By Joining S and A and
extending it further, we get savings curve.
(a) At point B on the consumption curve, total consumption expenditure (C) is equal to total income (Y). So, C/Y=1. Hence, at point B on consumption curve, APC=1
(b) Any point before A on SS' denote negative savings and negative APS.
