Short Answer Type

Advertisement

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


Consumption + savings = income.
It implies consumption and savings curves representing consumption and saving functions are complementary curves. Therefore, saving function or curve can be directly derived from consumption curve.

In part A, CC curve shows consumption function corresponding to each level of income whereas 45o line represents income. Recall that each point on 45o line is equidistant from 

X-axis and Y- axis. C curve intersects 45o line at point B where consumption = Income. Therefore, point B is called Break-even point showing zero saving.

It emphasises that saving curve must intersect X- axis at the same income level where consumption curve and 45o line intersect. Further, it will be seen that to the left of point B, consumption function lies above 45o line showing that consumption is more than income ie. Negative saving and to the right of point B, consumption function lies below 45o line showing positive saving.

In Part B, we derive saving function in the form of saving curve. In Part A, the amount of saving is the vertical distance between C curve and 45o line. By plotting Part B, the vertical distance of Part A representing saving and by joining them, we derive a saving curve.

Similarly, at OR level of income Part A, vertical distance at point B being nil is shown as point B1 on X-axis in lower part of the figure. Likewise, LM vertical distance of Part A is shown as L1M1 in Part B. By joining points S, B1 and L1 in lower segment, we get saving curve. Thus, saving curve/function is diagrammatically derived from consumption curve/function.



1111 Views

Advertisement

What are demand deposits?

335 Views

Distinguish between Revenue Expenditure and Capital Expenditure in a government budget. Give examples.

416 Views

Define capital goods.

408 Views

Define stock variable.

378 Views

Advertisement

Define a Tax.

824 Views

Find national income from the following:
Autonomous consumption Rs. 100
Marginal Propensity to consume Rs. 0.80
Investment Rs. 50
703 Views

Calculate Gross Value Added at Factor Cost:

(i) Units of output sold (units) 1000
(ii) Price per unit of output 30
(iii) Depreciation(Rs.) 1000
(iv) Intermediate cost (Rs.) 12000
(v) Closing stock (Rs.)  
430 Views

Give meaning of managed floating exchange rate.

487 Views

Advertisement

Explain the significance of the ‘Store of Value’ function of money.

430 Views