This, in turn, limited the amount of money that was available to be loaned out and caused businesses to become credit starved. The end result is that there was less spending and the recession continues. Therefore, during a recession, profit oriented banks would wish to reduce the money supply by increasing their excess reserves and declining to lend to less credit-worthy applicants. This causes an inward shift of the demand curve and if the government does not act, we could experience a deepening recession. Just the opposite would happen during an economic boom.
Banks are more willing to loan, expanding the money supply and feeding the boom and inflation.
The government will need to intervene here also. This is the role that the Federal Reserve Board plays in the US economy.