[HPsquared]

Money circulates between people. Person A takes out a loan and pays person B to do some work. Person B buys food and gas with the money.

[apropos_g]

Person A stops paying person B.

Is person B going to stop buying food and gas?

[HPsquared]

I suppose he could barter for it.

If person A holds on to the borrowed cash and doesn't spend it, that money doesn't circulate (the velocity of money decreases).

If person A doesn't take the loan, there is less money in the system (money supply is reduced).

If there's less money circulating, people won't "bid-up" the prices of food and gas as much, reducing their price (assuming constant supply of food and gas).

[rtkwe]

Person B might not be able to afford the gas in food now so possibly. The main way it functions is ultimately depressing wages and putting people out of work so there's less demand.