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Explain the steps required to be taken in deriving the consumption curve from the given |
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Answer» Steps taken for derivation of consumption curve are: (i) At zero level of income, the savings are O\OVERLINE{S} which is the amount of autonomous consumption at Y= 0. So, -O\overline{S} = O\overline{C}. HENCE, the consumption will start from the POINT \overline{C}. (II) We draw a 45° line passing through the origin which shows that C = Y. This is the income line. (iii) Now, we draw a vertical line from the point E, where saving is zero. At zero level of saving, C = Y. So, B is the break-even point. (iv) The consumption curve is derived meeting C and B and extending it forward. |
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