The Reserve Ratio Is 20 Percent and All Loan Proceeds

The reserve ratio is 20 percent and all loan proceeds are deposited in transactions accounts. A bond dealer has $100 million in deposits, $8 million in vault cash, and $7 million in deposits at the Fed. The Fed sells $1 million in securities to the bond dealer, who subsequently deposits the $1 million into a bank. As a result of this transaction alone

A) the money supply falls by $1 million and total reserves fall by $1 million.
B) the money supply falls by $1 million and total reserves rise by $1 million.
C) the money supply rises by $1 million, total reserves fall by $800,000.
D) the money supply rises by $1 million, but reserves do not change.