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Gay, in addition to meaning "merry", "joyous" or "glad", also means homosexual.

The word gay has had a sexual meaning since at least the nineteenth century (and possibly earlier) – in Victorian England, female and male prostitutes were called "gay" (because they dressed gaily). Eventually, "gay boys" (renters) became used as a term for any male homosexual. In the United States, the term may have arisen from the hobo community: a young hobo, a "gay cat" or "geycat", often had to befriend an older more experienced hobo for education and survival. Such a relationship was implicitly sexual, hence the term "gay cat" came to mean "a young homosexual".

A quote from Gertrude Stein's "Miss Furr & Mrs. Skeene" (1922) is possibly the first traceable use of the word, although it is not altogether clear whether she uses the word to mean lesbianism, or happiness.

''They were ... gay, they learned little things that are things in being gay, ... they were quite regularly gay.

Noel Coward's 1929 musical Bitter Sweet has the first uncontested use of the word: in the song Green Carnation, four overdressed, 1890s dandies sing:
''Pretty boys, witty boys, You may sneer
''At our disintegration.
''Haughty boys, naughty boys,
''Dear, dear, dear!
''Swooning with affectation...
''And as we are the reason
''For the "Nineties" being gay,
''We all wear a green carnation.
Coward uses the 'gay nineties' as a double entendre. The song title references the gay playwright Oscar Wilde, who famously wore a green carnation himself.

Gay can be used exclusively or inclusively. The exclusive meaning refers only to men who prefer sexual or romantic relationships with other men. The inclusive meaning refers to both men and women who prefer sexual or romantic relationships with their own sex (though there is some disagreement about this, hence the term "lesbians and gay men" – see homosexuality). Whether bisexuals are included in either of those meanings is a matter of debate (see bisexuality).

It has been claimed that "gay" was derived as an acronym for "Good As You", but this is a folk etymology.

The word "gay" is also used as slang to express derision or mockery. For example, "my computer is acting gay", or "that hat is so gay". The derogatory implication is usually that the object in question is inferior, weak, effeminate, or just stupid. In some parts of the United States, this slang is very common among young people, many of whom do not link their usage and the homosexual usage. Another spelling, "ghey", is sometimes found on the Internet and is supposedly used either to insult without reference to homosexuality or to bypass chat room censors. See also: fag.

According to the Safe Schools Coalition of Washington's Glossary for school employees: "Homosexual: Avoid this term; it is clinical, distancing and archaic. Sometimes appropriate in referring to behavior (although same-sex is the preferred adj.). When referring to people, as opposed to behavior, homosexual is considered derogatory and the terms gay and lesbian are preferred, at least in the Northwest."

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