Final answer:
The short-run effects of increased government expenditure most likely include decreased unemployment, increased inflation, and increased Real GDP, which corresponds with a general increase in aggregate demand leading to these outcomes.
Step-by-step explanation:
The most likely short-run effects of an increase in government expenditures are a decrease in the unemployment rate, an increase in the inflation rate, and an increase in Real GDP. This aligns with option C) Unemployment rate: decrease; Inflation rate: increase; Real GDP: increase. When the government spends more, it increases aggregate demand, which can lead to more hiring to meet the higher demand, thus lowering unemployment. However, with higher demand, prices tend to rise, which can increase the inflation rate. Additionally, higher aggregate demand typically results in an increase in Real GDP in the short run.
If the Federal Reserve begins to increase the supply of money at an increasing rate, the initial impact would likely be similar, with an increase in GDP and potential for decreased unemployment due to stimulated economic activity. However, the bigger impact could be on the inflation rate, which may rise significantly if the money supply grows too quickly.