Which one of the following is a monetary principle stating that "bad money drives out good"?
Show answer & explanation
Correct answer: C
Explanation
The correct answer is option 3 i.e. Gresham's law.
- Gresham's law states that "bad money drives out good".
- The law observes that legally overvalued currency will drive legally undervalued currency out of circulation.
- For example, if there are two forms of commodity money in circulation, which are accepted by law as having similar face value, the more valuable commodity will gradually disappear from circulation.