Suppose That a Bank Begins with $500 Million in Deposits

Multiple Choice

Suppose that a bank begins with $500 million in deposits and $100 million in reserves and is just meeting its desired reserve ratio. Now suppose a decrease in the required reserve ratio lowers the desired reserve ratio to 10 percent. After the fall in the desired reserve ratio but before the bank makes any changes, the bank's excess reserves are

A) 0.
B) $400 million.
C) $450 million.
D) $50 million.