Final answer:
Increasing the money supply can stimulate short-term economic activity, potentially raising GDP and lowering unemployment, but in the long run, it leads primarily to higher inflation, not affecting the labor force, technological knowledge, or physical capital. Hence correct option is C. the inflation rate.
Step-by-step explanation:
When the Federal Reserve increases the supply of money, this typically has a short-term and long-term impact on several macroeconomic variables. In the short run, increasing the money supply can stimulate economic activity, potentially leading to a rise in Gross Domestic Product (GDP) and a decrease in unemployment due to the increased demand for goods and services. However, as the economy adjusts, this influx of money can lead to higher inflation rates, as more money chasing the same quantity of goods results in price increases.
In the long run, the economy tends to return to a natural level of output, known as potential or full-employment GDP, which is determined by the productive capacity of the economy—not by the amount of money circulating. Factors such as the size of the labor force, the level of technological knowledge, and the quantity of physical capital shape this capacity. Therefore, if the Federal Reserve triples the growth rate of money, it would not have a direct impact on the size of the labor force, technological knowledge, or the quantity of physical capital, but it would definitely lead to increased inflation in the long run.