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JAMB Economics 1994 Question 38

Question 38

Money and Inflation

Gresham's law in Economics shows that

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

Answer: B (bad money drives out good money)

Explanation

When good and debased coins circulate together, people hoard the good ones and spend the bad, so bad money drives good money out of circulation.