What happens to the saving curve when the consumption curve shifts? What happens to the saving and consumption curves when taxes are changed? Explain
The answer depends on what caused the consumption curve to shift. If changes in real asset or money
holdings, expectations of future price changes, or changes in credit or interest rates caused the consumption
curve to shift upward, then the saving curve must shift downward. But a change in taxes will shift the
saving curve and the consumption curve in the same direction. This is because people will pay a higher tax
bill by cutting back on consumption and saving, and they will respond to a lower tax bill by spending and
saving more.
Economics