CBSE 2014 Class 12 Economics Delhi Set-1
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Question : 19 of 19
Marks:
+1,
-0
Outline the steps required to be taken in deriving saving curve from the given consumption curve. Use diagram.
Solution:
The following figure, is the consumption curve. The line is the aggregate supply curve. At point A, consumption = income i.e., represents the autonomous consumption i.e., consumption at zero level of income. Steps for derivation of supply curve from consumption curve is as follows :
(i) Corresponding to in the consumption function we have-in the saving function. That is, there are negative savings equal to autonomous consumption at . This is represented by on the negative axis in the lower panel.
(ii) At point . This implies that all the income is spent on consumption expenditure.
Thus savings equal to zero. This is shown as in lower panel. This point is also known as the Break-even point.
(iii) Beyond the break-even point, by connecting points and we derive the straight upward sloping saving curve.
(iv) is the required saving curve.
(i) Corresponding to in the consumption function we have-in the saving function. That is, there are negative savings equal to autonomous consumption at . This is represented by on the negative axis in the lower panel.
(ii) At point . This implies that all the income is spent on consumption expenditure.
Thus savings equal to zero. This is shown as in lower panel. This point is also known as the Break-even point.
(iii) Beyond the break-even point, by connecting points and we derive the straight upward sloping saving curve.
(iv) is the required saving curve.
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