Final answer:
Increasing the money supply at a high rate is generally expected to lead to A)increased inflation, as it can cause a surplus of money chasing a fixed number of goods and services, reducing the purchasing power over time.
Step-by-step explanation:
The long-term effect of increasing money supply, such as actions undertaken by the Federal Reserve, is typically increased inflation. When the Federal Reserve increases the money supply at an increasing rate, this can initially stimulate economic activity and potentially lead to increases in GDP and decreases in unemployment. However, if the money supply grows faster than the real output of goods and services, the result can be rising inflation rates, as more money chases the same number of goods.
While deflation has its consequences like restricted economic growth and elevated borrowing costs, inflation, on the other hand, reduces the purchasing power of money and can have a spiraling effect on the prices of goods and services. Central banks often have to balance between preventing high inflation and high unemployment, and thus may shift their focus depending on the existing economic conditions.