Final answer:
The statement is true; the Federal Reserve sets reserve requirements for banks to control the amount available for lending, thereby influencing the economy. Adjustments to these requirements can have significant impacts on bank operations, economic activity, and inflation.
Step-by-step explanation:
Understanding Reserve Requirements
The statement that banks must hold a certain percentage of their assets in reserve, as established by the Federal Reserve (the Fed), and that the Fed may alter these requirements to influence the economy, is true. Reserve requirements are a regulatory mandate that determines the minimum amount of reserves a bank must hold against deposits. In early 2015, the required reserve ratio included holding 0% for the first $14.5 million, 3% for deposits up to $103.6 million, and 10% for amounts above this threshold. Minor adjustments to the reserve requirements occur nearly every year to reflect economic conditions and maintain financial stability.
Banks are less able to lend if they are mandated to hold a larger amount in reserves. Conversely, if the requirement is decreased, banks can lend more, thus stimulating economic activity. However, large changes in reserve requirements are rarely used as a tool for monetary policy because they can be highly disruptive to the banking system. Instead, the Fed often opts for other methods, such as open market operations or changing the discount rate, to implement policy changes. Nevertheless, the reserve requirement is a critical component in the Fed's toolbox for managing the economy and controlling inflation.