Answer:
When the Fed carries on an expansionary monetary policy, increasing the money supply, interest rates should lower. When interest rate decrease, private consumption increases especially through purchases made on credit (e.g. auto loans, home mortgages, greater credit spending, etc.). An increase in private consumption should increase aggregate demand, increasing the gross domestic product (GDP). The problem with expansionary monetary policy is that is also increase the inflation rate which reduces the benefits of the increase in spending.
