WBCS.LIVE practice question

'Gresham's Law' in economics states that:

Solve this multiple-choice question and check the correct answer with its explanation below.

Answer options

  1. Supply creates its own demand
  2. Good money drives out bad money
  3. Demand creates its own supply
  4. Bad money drives out good money

Correct answer and explanation

Correct answer: Bad money drives out good money

Explanation: āœ… Correct Answer: (D) Bad money drives out good money šŸ“š Explanation: Gresham's Law is a monetary principle stating that "bad money drives out good." If there are two forms of commodity money in circulation, which are accepted by law as having similar face value, people will hoard the 'good' money (valuable metal) and spend the 'bad' money (debased or lighter coins). As a result, the good money gradually disappears from circulation. It is named after Sir Thomas Gresham, a financial adviser to the English Crown in the 16th century.