6

Set 3: Central Ideas (Advanced)

Explanation

Answer: A

PASSAGE

The following text describes 'Gresham's Law'. Gresham's Law is a monetary principle stating that 'bad money drives out good.' This occurs when two forms of currency are accepted by law at the same face value, but have different intrinsic values (amount of precious metal). People will hoard the currency with higher intrinsic value ('good money') and spend the currency with lower intrinsic value ('bad money'), effectively removing the good money from circulation.

Under what condition does Gresham's Law operate?

A. When the government recalls all currency✓ Correct
B. When two currencies have equal face value but unequal intrinsic value
C. When inflation is extremely high
D. When consumers prefer using credit cards over cash

Detailed Explanation

Choice B is correct. The text explains it occurs when: 'two forms of currency are accepted... at the same face value, but have different intrinsic values.'

Key Evidence:

• "same face value"

• "different intrinsic values"

Why others are wrong: A (Not mentioned), C (Not mentioned), D (Not mentioned).

← PreviousNext →