Question

Outline the steps taken in deriving saving curve from the consumption curve. Use diagram.

Answer 1

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.