[sharktrager]

Actually, savings would not have that impact.

Money which is not saved is either spent or invested. In either case, 100% of the funds are placed in to circulation. However, a bank is only allowed to lend a percentage of what they have on deposit. As a result, less than 100% of money in savings is then spent or invested..

[bruinbirdman]

As a result, less than 100% of money in savings is then spent or invested..

I don't think that is the case. Suppose I save $1000 and put it in the bank. The bank must reserve 6% ($60) in case someone wants to make a withdrawal. The bank can then loan $940.

You borrow $940 from the bank for home improvements but can only use $140 this month. You deposit $800 in your bank account until you need it. The bank now has another $800 of deposits. It reserves 6% as required by law and lends $752.

As you can see, if the reserve rate is 6%, the bank can theoretically lend about 16 times the amount.

yitbos