(a)

“Consumption and saving curves complement each other.” Do you agree with the statement ? Explain with valid reasons.

(b)

“Taxes help to curb deflationary situation in the economy.” Comment.

(a) Consumption and savings are the functions of income (i.e., Y = C + S)The major portion of income is spent on consumption of goods and services and the remaining portion is saved i.e. saving and consumption are interdependent (curve/function). This means that income is either consumed or saved.Thus, we may say that the consumption (curve/function) complements savings (curve/function).(b) The given statement is correct as under the situation of deficient demand, government generally reduces the taxes rates. This leads to higher disposable income in the hands of people. As a result, people will be able to spend more on consumption and investment expenditure.This step taken by government ultimately raises the level of Aggregate Demand and helps to tackle the situation of deficient demand prevailing in the economy.