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This picture depicts how the economy works. It explains that if the economy goes in a circular motion it is doing well. It shows how important every aspect is. It's quite easy to read as well.

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(Website#3)
This is a PDF on building a strong economy for Canadians. This is written by the Department of Finance Canada. There is a wide variety of information given on this website. It starts with the advantages of having a good economy, and why it is good for the government. It provides knowledge for people about new opportunities and savings. It tells how investing helps the economy grow. It also talks about businesses, and trades, and how to grow and succeed.

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Does an increase of Savings help the Economy

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Does an increase of Savings help the Economy

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(Website#2)
This website tells the reader exactly why increase in savings help the economy. This is a UK website, but all of the information still applies to Canada. It goes into detail about the UK economic growth. The images on the website really help with understanding the information. Showing the short term and long-term reasons why investing and saving helps benefit the over all economy.

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The savings ratio a big determinant of economic activity. Consumer spending accounts for 63% of GDP - dwarfing other areas, such as government spending, investment and exports. A rise in the savings ratio can have a very significant impact on economic activity.

A blogger, mentioned a minister, Liam Fox calling for more savings.

Former cabinet minister Liam Fox has urged the government to freeze public spending for five years and use the savings to cut taxes and the deficit.

Stamp duty and taxes on bank account interest could be reduced to help create a "savings investment culture", the ex-defence secretary said. ( BBC)

In principle, there's nothing wrong with a 'savings investment culture'. Higher savings can help finance higher levels of investment and boost productivity over the longer term.

In economics, we say the level of savings equals the level of investment. Investment needs to be financed from saving.

If people save more, it enables the banks to lend more to firms for investment.

An economy where savings are very low means that the economy is choosing short-term consumption over long-term investment. To starve the economy of investment can lead to future bottlenecks and shortages.

The Harrod-Domar model of economic growth suggests the level of savings is a key factor in determining economic growth rates.

Short-term rise in savings

Whilst in the long-term, savings are an important factor in determining investment. In the short-term, a rapid rise in savings can cause a fall in consumer spending which can lead to a recession.

Since consumer spending accounts for 63% of GDP, this rapid increase in savings and a fall in spending was a significant cause of the 2008/09 recession. The continued reluctance of consumers to spend is a significant factor in the continued economic stagnation.

In this circumstance, a rapid rise in saving does not cause an equivalent rise in investment. Although banks see a rise in their deposits, they are reluctant to lend to firms - because the economic outlook is pessimistic. Also, in a recession, banks may not want to invest - even if banks are willing to lend at low rates. A recession, usually sees a sharp fall in investment.

At this point, a slight fall in the savings rate and corresponding rise in consumer spending would help promote economic recovery.
Paradox of thrift
It's a bit of a paradox. We tend to think of savings as good and virtuous; and at the right time, it is. But, if everyone saves at once, it can cause a drop in aggregate demand and cause a recession. Keynes called it the Paradox of Thrift.

There is also the paradox of savings - people save more when they think it's a bad time to save and save less when it's a good time to save!

It reminds us of good old St Augustine - make me chaste (a good virtuous saver), but not just yet. So yes, there's nothing wrong with encouraging a decent level of savings, but we shouldn't make higher savings a priority when you're trying to end five years of economic stagnation.

In the boom period 2000-2007, more saving would have been helpful. But, not in the period of economic recovery.

Furthermore, a freeze in public spending for five years would also be damaging to aggregate demand. Unfortunately, recent government spending cuts/spending freezes have not caused a corresponding increase in private sector spending to replace it.

This graph shows that the household sector went from net borrowers in 2007, to net lenders (savers) after 2008.

Banks (financial corporations) and private corporations also increased their net lending (saving) in the past few years.

The government significantly increased its borrowing - but it's helpful to see this in the context of rising private sector lending. If we had been cutting government spending from 2008, we would have seen all sectors private and public trying to increase savings, reduce spending.

In a way, the government borrowing is offsetting the private sector surplus.

Freezing government spending in 2000-2007 would not have damaged a strong economy. But, freezing it now would.
Related

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Would an increase in savings help the economy? - Economics Help

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The savings ratio a big determinant of economic activity. Consumer spending accounts for 63% of GDP - dwarfing other areas, such as government spending, investment and exports. A rise in the savings ratio can have a very significant impact on economic activity. A blogger, mentioned a minister, Liam Fox calling for more savings.

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(Video#2)
There is a huge and important difference between savings and investing. This video is very easy to follow. It explains the differences very well. The video shows you where to put your money. As well as the benefits and potential fail of saving and investing. It shows different ways to invest your money such as bonds if you want less risk. Money invested is generally more difficult to withdraw than just from a savings account.

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A two sector economy includes injections and withdrawals. This means people putting money in the economy and taking away from it. So paying for land labour and whatever else we have to pay for.

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(Website#1)
This is a very informational website. It is American, but all economy’s have the same rules when it comes to saving and investing helping the economy. This will also help predict the future economy. Seeing how much savings everyone has shows how the economy is doing. It is also really important for people to keep track of the overall savings in the banks to make sure we don’t repeat any mistakes.

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Americans are known for a lot of things, but saving isn't one of them. In the credit-fueled spending spree that personified the last decade, the national savings rate dropped to all-time lows - even turning negative in 2005.

We all know that saving is important, and when the economy hits upon tough times, having money in the bank can be a godsend. With inflation fears running rampant, though, is saving really worthwhile? Here's why saving money is still sage advice in an economy that's struggling to recover. (Learn more about saving in Save Without Sacrifice and It's Never Too Early To Start Saving.)

Credit Cause
The past two months have shown us that recovery isn't something investors can take for granted. Since the beginning of 2010, we've seen key economic metrics miss analyst expectations and stocks have slinked lower as a result. There's a connection between our languishing savings rate and the economic straits we find ourselves in right now. It all begins with credit ...

The widespread acceptance of credit in the past two decades has helped fuel significant growth in the U.S., but it has also come at a significant cost. With credit freely available, particularly in the last few years, consumers took to using their credit lines (and home equity, for that matter) like a savings account. As a result, they stopped saving. In January 1959 Americans saved 8.3% of their income, but by early 2008 that number had shrunk to 0.8%.

As the credit market seized, and consumer credit lines began to shrivel, people started to realize that the credit limits on their accounts weren't the same as cash in the bank. (Learn more in 9 Reasons To Say "No" To Credit.)

Savings Bring Recovery
The idea that savings help out in a tough economy isn't an earth-shattering revelation. But you might be surprised to find out just how much a high savings rate can speed up economic recovery.

One of the biggest challenges to our economy in the last 18 months has been the chain reaction of defaults that is endemic to our credit system. As a collapsing real estate market shoved overextended consumers underwater on their mortgage payments, those same consumers found themselves slashing spending at the last minute and going into default, which, in turn, cut economic output and increased job losses putting even more people in tough spots.

A small number of consumers and lenders were very quickly able to affect a larger portion of the economy because of the financial system's interconnectedness.

How Savings Help
To be sure, higher savings reserves mean that consumers have cushions that can help absorb overwhelming expenses without digging the hole deeper. But just as importantly, having a higher portion of income allocated to savings means that living expenses are lower - and consumers can adjust their budgets to spend a larger chunk of income on increased mortgage payments or better compensate if they lose their jobs.

That ability to cope with financial hardship ultimately means that the economy recovers much faster. After all, when the bills are being paid, the banks, utilities and grocery stores can keep their doors open - and their workers employed.

Savings, Government and Risk
That's not to say that savings are without risk; anyone who held stocks in their retirement accounts in October 2008 can attest to that. Even government intervention can work against savers - stimulus spending and increased inflation both work against your cash. (Learn more about government intervention in Economic Meltdowns: Let Them Burn Or Stamp Them Out?)

When a government provides stimulus to its citizens, it typically finances those expenses through additional sovereign debt, which needs to be paid off by future generations. In a sense, the savers are forced to bail out non-savers when the government gets involved. Simply printing extra money is another way that governments pay for stimulus. When that happens, there's a serious risk of inflation, the number-one killer of savings.

With inflation, each dollar in your savings account has less real purchasing power. It's the reason why a loaf of bread cost five cents in 1910 and averages more than $2 today.

And while those risks are very real, widespread savings essentially eliminates the need for government stimulus in the first place by shoring up the nation's finances at the consumer level. As with most economic crises, the national savings rate shot up following 2008's real estate collapse, as those who could afford to save stashed their cash anticipating tougher times ahead. But already, we've seen savings rates take a hit as the economy and the stock market rebounded last year.

Bottom Line
On both a personal and national level maintaining a solid savings rate is one of the best cures for economic woes. Although that means that Americans will have to live within their means, it also means that we'll be less susceptible to economic downturns in the future. What remains to be seen is whether consumers will remember the lessons of the last few years and maintain a more cautious savings level when credit flows freely once again.

After all, if we can't learn from our mistakes, we'll be doomed to repeat them.

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Americans are known for a lot of things, but saving isn't one of them. In the credit-fueled spending spree that personified the last decade, the national savings rate dropped to all-time lows - even turning negative in 2005. We all know that saving is important, and when the economy hits upon tough times, having money in the bank can be a godsend.

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(Video#1)
This is a very informational video. It talks about how the economy originally started. He explains himself very well and is easily understood. It shows how individuals have a huge impact on the economy. Going through all of a person's expenses shows how much money they are putting into the economy by investing in business. For example, when hiring a gardener, the person pays them, then their money goes into savings.

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💰 How is Wealth Created | Savings and Investments

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http://www.writeopinions.com/measures-of-national-income-and-output
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This is a great visual on how investing and savings all have great impacts on the economy.

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Elizabeth Ho shows ways to spend your money to make money. This is based in the U.S., but it applies to Canada as well. It shows what banks do with your money once they have it, and how companies can make you even more money. She also explains how putting your money in savings, and investing your money helps the overall economy. It is a very helpful link to help understand how your money in the bank or investments help the economy.

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Ways to Spend Money

Let's say that you suddenly got a check for $1,000. What would you do with it? If you're like a lot of people, you'd probably go out and spend a good chunk of it, whether on clothes, electronics, or a trip. However, if you didn't want to use it right away, you would be wise to hold on to it. But how would you hold on to it in order to make sure that it was available in the future? Chances are that you would deposit your money in a bank. After all, banks hold money for their customers. But, what do you think a bank does with that thousand dollars?

In this lesson, we will explore the answer to this question to see what a bank does with your money after you hand it to the teller and to see how companies can use your cash to make you even more money.

Saving Your Money

If you thought that a bank simply held your money in a vault until you were ready to use it, you couldn't be more wrong. Banks use the money you trust them with in order to make more money. Say that you deposited that money at your neighborhood bank. In fact, you could put it in a savings account or a certificate of deposit, a special account that you can only access after a certain period of time, and the bank is paying you an interest rate. The bank is paying you to keep track of your money - it's a pretty nice deal! You look at the bank owing you a thousand dollars whenever you want it, but the bank looks at it differently. To the bank, that's now an amount of money that they can loan out to other people or businesses.

How Banks Create Money

But how do banks use that money? In short, they use it to create new money. When you deposited that money in the bank, the bank is permitted by law to loan out a certain percentage of that money. It is required to keep a portion of deposited funds on hand at all times, known as the reserve ratio. However, the rest is available for the bank to use as it wishes. So let's take that $1000 and say that the reserve ratio is 10%. The bank has to keep $100 on hand but can loan that $900 out to anyone it wants to. Your $900 is suddenly paying for your little sister's car loan, your neighbor's mortgage, and even the new renovations at the restaurant down the street.

Of course, the bank makes a pretty penny off of this. Chances are that it is charging those other people several percentage points of interest, while only paying you one or two percent. That difference in interest rates is the bank's profit for the year. For example, if it makes $100 in interest off of every thousand dollars it loans out but only has to pay you 1%, or $10, to keep your thousand dollars, then the bank has made $90. Considering that even the smallest banks can loan out millions of dollars a year, it's easy to see how banks can make so much money.

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how saving & investing contribute to the us economy - video & lesson transcript | study.com

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How Saving & Investing Contribute to the US Economy - Video & Lesson Transcript | Study.com

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Let's say that you suddenly got a check for $1,000. What would you do with it? If you're like a lot of people, you'd probably go out and spend a good chunk of it, whether on clothes, electronics, or a trip.