Part 5/10:
Banks are increasingly cautious, tightening lending standards and reducing the amount of capital available for loans to businesses and consumers. These tighter standards limit business expansion and consumer spending, creating a ripple effect through the economy.
Consequences of a Shrinking Money Supply
The contraction of the money supply has several significant implications:
Reduced Lending: Less cash available means fewer loans for businesses to buy inventory and for individuals to finance major purchases.
Potential Rise in Unemployment: As businesses face higher borrowing costs and reduced access to capital, they may cut jobs, leading to increased unemployment in the coming months.