Raising the reserve ratio is recommended to maintain zero inflation with declining resource supplies, while other actions may lead to inflationary pressures.
Raising the reserve ratio would be a suitable monetary policy action to maintain a zero rate of inflation at full employment when declining resource supplies reduce potential output. By increasing the reserve ratio, banks are required to hold a higher percentage of their deposits in reserves, limiting the amount of money available for lending and thus controlling inflation.
On the other hand, lowering the discount rate or buying securities would inject more money into the economy, potentially fueling inflation rather than combating it. Similarly, increasing government spending could stimulate demand further, exacerbating the inflationary pressure.
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