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Generate QuizAccording to Gresham's Law, what happens when two forms of commodity money with the same face value circulate simultaneously?
- Good money drives out bad money
- Bad money drives out good money
- Both circulate equally
- Both are hoarded
Answer: Bad money drives out good money
Gresham's Law states that if there are two forms of money in circulation with the same face value but different intrinsic values, people will hoard the 'good' money (higher intrinsic value, like gold) and spend the 'bad' money (lower intrinsic value). Consequently, the bad money dominates the market.