Question: How does adverse selection influence financial structure? Explain Akerlofs lemons problem and discuss how this arises in securities markets. (b) Suppose that the Fed sells

How does adverse selection influence financial structure? Explain Akerlofs lemons problem and discuss how this arises in securities markets. (b) Suppose that the Fed sells $2 million of bonds to the First National Bank (FNB). What happens to reserves and the monetary base? Use the T-accounts of the Fed and the FNB to demonstrate your answer.

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