The simple money multiplier Suppose that the Federal Reserve ("the Fed") buys $50,000 of U. S. government bonds and the required reserve ratio is 0.20. If the assumptions of the simple money multiplier hold, this will the money supply by . Which of the following assumptions is necessary for the simple money multiplier to be applicable? The Fed has set the required reserve ratio to between 5% and 10%. Banks have perfect information about the creditworthiness of all borrowers. Banks hold no excess reserves. If the correct assumption did not hold, the change in the money supply would be than you previously found. Which of the following describes why this holds true? If banks held excess reserves, they would make fewer loans. Banks would make fewer loans than they would if they could perfectly observe borrowers' true riskiness. The multiplier only holds as long as the required reserve ratio is less than 15%.