Our body's reaction to insufficient calories is to demand more, a response we know as hunger. When we don't receive enough calories from our diet, the body will begin to compensate by shutting down systems in the body that consume energy and begin to waste away your muscles and fat. Physical movements become harder as your body will begin to crave more sleep. Your body temperature begins to drop and even thinking is minimised (the brain uses 25% of the energy we consume). None of this is a conscious decision. What this means is that your body will begin to burn less calories than someone else of a similar weight and height. Generally, when your body drops off fat, you will begin to burn less calories because your body is moving around less weight. This means that your body doesn't need a big engine anymore to walk or do every day chores. A small car needs a small engine as a big truck needs a bigger engine. By either starving yourself or having fewer calories than your body needs, your metabolism will slow down a lot quicker and begin using muscle and fat as a preferred energy source which is undoubtedly a bad thing. This will lead to massive amounts of fat gain as soon as you begin to increase your food intake (calorie intake) by even the smallest margin. This happens because all your energy systems in the body store more carbohydrates in preparation of starvation mode. Once your body takes in all the carbohydrates, your storage systems (muscle and liver) will overfill and begin turning carbs into fat. This will also slow your metabolism down in the body making it burn less calories a day because it has entered storage mode instead of burning the calories.
To summarise, when you eat no carbohydrates or less calories than required, yes your body will begin to lose BOTH muscle and fat which is an awesome temporary loss, however your metabolism will slow down dramatically. As soon as you jump off the diet into a "normal" eating regime, your body will respond in a negative way and the weight will begin to creep back on.
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