A relaxation of credit standards is expected to affect profits positively due to lower carrying costs, whereas tightening credit standards would affect profits negatively as a result of higher carrying costs.

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Relaxation of credit standards can lead to higher sales and potentially higher profits due to increased customer base, but it also increases the risk of bad debts and carrying costs due to extended credit terms. Tightening credit standards might reduce sales volume but can lead to lower carrying costs and bad debt expenses, potentially stabilizing or improving profits.

A Relaxation of Credit Standards Is Expected to Affect Profits