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Gresham’s Law states that ‘bad money drives out the good’. This means that when two monies
circulate at the same time, firms and households tend to spend the inferior form of money and
keep or hoard the ‘better’ one. Is this behavior consistent with our definition of money or those
features stressed by Jevons? Explain. Virtually every civilization has used one form of money or
another. We have defined money as a form of wealth-a means of transferring consump- tion
across time-which is generally and readily accepted by others in market transactions. Despite its
very low rate of return-banknotes yield no interest at all-people and companies use it. This is
because money uniquely facilitates commercial transactions, big and small alike. As a result, it
lies at the heart of any economy. The nineteenth-century British economist William Jevons
defined money in his time as hav- ing four attributes or functions: (1) means of pay- ment, (2)
unit of account, (3) store of value, and (4) standard of deferred payment. These features
described well the coins and sterling banknotes as well as the growing use of paper cheques,
promis- sory notes, and other negotiable instruments of his day. Yet do they describe adequately
what we use today and what we will use as money in the future?
Solution
Ans
This is consistent with jevons definition because only that money is hoarded which is better in
quality. In other words whose value is greater as store of value. E. G better gold coins are
hoarded because they store better and greater amount of gold.

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Gresham’s Law states that ‘bad money drives out the good’. This mean.pdf

  • 1. Gresham’s Law states that ‘bad money drives out the good’. This means that when two monies circulate at the same time, firms and households tend to spend the inferior form of money and keep or hoard the ‘better’ one. Is this behavior consistent with our definition of money or those features stressed by Jevons? Explain. Virtually every civilization has used one form of money or another. We have defined money as a form of wealth-a means of transferring consump- tion across time-which is generally and readily accepted by others in market transactions. Despite its very low rate of return-banknotes yield no interest at all-people and companies use it. This is because money uniquely facilitates commercial transactions, big and small alike. As a result, it lies at the heart of any economy. The nineteenth-century British economist William Jevons defined money in his time as hav- ing four attributes or functions: (1) means of pay- ment, (2) unit of account, (3) store of value, and (4) standard of deferred payment. These features described well the coins and sterling banknotes as well as the growing use of paper cheques, promis- sory notes, and other negotiable instruments of his day. Yet do they describe adequately what we use today and what we will use as money in the future? Solution Ans This is consistent with jevons definition because only that money is hoarded which is better in quality. In other words whose value is greater as store of value. E. G better gold coins are hoarded because they store better and greater amount of gold.