Given a consumption curve, outline the steps required to be taken in deriving a saving curve from it. Use diagram.


In the given diagram the consumption curve is given by


Where


C = autonomous consumption


Y = income


B = the rate at which consumption increases with increase in income


The aggregate supply curve is at 45 degree


Consumption is equal to Income at point E


Derivation of saving function from consumption function


S is the saving function


Where


Negative savings = autonomous consumption at Y = 0


This is shown on the negative axis in the lower panel


At point S here all the income is spent on consumption expenditure and the saving is 0, which is shown as breakeven point S after this point S and Y are joined to have a straight line sloping curve.


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