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| Q. |
Which one of the following statements is correct? |
| A. | Good money drives bad money out of circulation |
| B. | Bad money drives good money out of circulation |
| C. | Good and bad money cannot circulate together |
| D. | Cannot say |
| Answer» B. Bad money drives good money out of circulation | |
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Explanation: One of the most famous axioms in economics is "bad money drives out good." This rule has generally been attributed to Sir Thomas Gresham (1519-1579), an English financier who advised King Edward VI and Queen Elizabeth I with regard to financial matters, and it is popularly known as Gresham's Law. The key prerequisite is that there must be two forms of money or currency (with the same face value) in circulation simultaneously. |
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