what happens when the federal reserve limits the money supply 
a country s money supply has a significant effect on its macroeconomic profile particularly in relation to interest rates inflation and the business cycle when the fed limits the money supply via contractionary or hawkish monetary policy interest rates rise and the cost of borrowing goes higher there is a delicate balance to consider when undertaking these decisions limiting the money supply can slow down inflation as the fed intends but there is also the risk that it will slow economic growth too much leading to more unemployment 