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Q. How to evaluate total savings?
Total savings
Total savings S(r) depends positively on the real interest rate
Remember that total savings is stated as S = SH + SG + SR, sum of net savings from the household, government and rest of the world. As with SH, S may be the observed amount of savings or total supply of savings. In the classical model, SR and SG are exogenous variables. SG = NT - G and SR = Im - X depend only on exogenous variables and are thus themselves exogenous.
Only part of savings that is endogenous is household savings. Because household savings depend positively on real interest rate, total savings will depend positively on real interest rate. In the classical model we use S(r) to signify total savings and we have
S(r) = SH(r) + SG + SR.
Note that SH, SG, and/or SR may very well be negative. For instance when SG is negative, G > NT and government is a net borrower.
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