In each of the following cases, identify whether the problem isadverse selectionormoral hazard, and explain your answer. How might the problem be dealt with?

a.The IMF has given a large payment to the nation of North Dystopia to help them cope with a financial crisis. With the money in hand, the government prefers spending the money on erecting statues in honor of their esteemed leader rather than on economic policies to improve their financial system.

b.The nation of South Dystopia is trying to get a large loan from the World Bank. The government knows, but the World Bank does not, that the country is very unstable and there could be a military coup in the next year.

c.The US commercial banking system, whose deposits are protected by the FDIC (Federal Deposit Insurance Corporation), begins to invest in high risk/high return collateralized debt instruments (e.g. derivatives) rather than making traditional loans.