Part 2: Are following statements TRUE or FALSE? Give explanations ( 2 points in total, each weight 1 point). Question 2: CLO 2.2, 2.3, 2.4 The presence of costly state verification in financial markets leads to adverse selection and moral hazard problems that interfere with the efficient functioning of financial markets. Question 3; CLO 1.1, 2.1, 2.4,3.3 There are two ways in which the Fed can provide additional reserves to the banking system: it can purchase government bonds or it can call in discount loans to commercial banks