At One Time, the Country of Islandtopia Had No Banks

question 9

Multiple Choice

At one time, the country of Islandtopia had no banks, but had currency of $10 million. Then a banking system was established with a reserve requirement of 20 percent. The people of Islandtopia now keep half their money in the form of currency and half in the form of bank deposits. If banks do not hold excess reserves, how much currency do the people of Islandtopia now hold?

• A) $2 million
• B) $5 million
• C) $9 million
• D) $12 million

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Definitions:

Competitive Market

A market structure characterized by numerous buyers and sellers, where no single participant has significant market power, leading to products being sold at their market equilibrium prices.

Profit-Maximizing

The process or strategy of adjusting production and sales to achieve the highest possible profit under given market conditions.

Level Of Production

The total quantity of goods or services produced by a company or an economy during a specific period.

Competitive Market

A market structure characterized by a large number of buyers and sellers, where no single entity can dictate prices.