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JAMB Economics 1986 Question 33

Question 33

Money and Inflation

Graham's law in Economics shows that

  1. A.bad money drives good money out of circulation
  2. B.good money drives bad money out of circulation
  3. C.gold must be available to maintain the value of paper money
  4. D.the price level varies directly with the quantity of money.
Show the answer and explanation

Answer: A (bad money drives good money out of circulation)

Explanation

Gresham's law (printed here as Graham's) says people hoard good money and spend bad money, so bad money drives good money out of circulation.