Final answer:
True, the Federal Reserve lowers the reserve requirement to increase the money available for loans, which stimulates the economy. This is part of the Fed's monetary policy tools aimed at influencing credit availability and economic activity.
Step-by-step explanation:
True. By lowering the reserve requirement, the Federal Reserve aims to make more money available for loans and, thereby, stimulate economic activity. When banks are required to hold a smaller percentage of deposits as reserves, they have more funds to loan out to individuals and businesses. The fractional reserve system means banks only keep a portion of deposits on hand, the rest can be loaned out. A decrease in reserve requirements increases the amount of money available for lending, which can lead to a multiplication of the money supply through the banking system - an effect known as the money multiplier. Additionally, the Federal Reserve uses monetary policy to manage the money supply and influence credit conditions in the economy. While it has other tools like open market operations and the discount rate, adjusting the reserve requirements is a direct way to alter the lending capacity of banks. This decision rests on economic factors and is geared towards maintaining stability and growth in the economy.