5. The simple money multiplier Suppose that the Federal Reserve ("the Fed") buys $5,000 of U.S. government bonds and the required reserve ratio is 0.10, 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? People's marginal propensity to consume does not rise with income. O Borrower default rates are stable. The amount of cash people want to hold doesn't change when the money supply changes. 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 borrower default rates were not stable, then the money creation process would be disrupted. O if people kept some of the new money as cash rather than depositing it in another bank, this cash could not in turn become a bank loan. if people's marginal propensity to consume rose with income, they would save less, removing money from the financial system