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

In the diagram C+bY is the consumption curve. The 45-degree line is the aggregate supply curve. At point E, consumption=income i.e (Y=C). C represents the autonomous consumption i.e consumption at zero level of income. Steps for derivation of supply curve from consumption curve as follows: (i) Corresponding to C in the consumption function we have -C in the saving function. That is, there are negative savings equal to autonomous consumption at Y=0. This is represented by S on the negative axis in the lower panel. (ii) At point E (Y=C). This implies that all the income is spent on consumption expenditure. Thus, savings equal to zero. This is shown as S=0 in lower panel. This point is also known as the Break-even point. (iii) Beyond the break-even point, by connecting points S and Y we derive the straight upward sloping saving curve. (iv) SS is the required saving curve.