Why Do Financial Institutions Exist?

In this chapter we discuss the lemons problem and its effect on the efficient functioning of a market. This theory was initially developed by George Akerlof. Go to

https://www.nobelprize.org/prizes/economic-sciences/2001/summary/

This site reports that Akerlof, Spence, and Stiglitz were awarded the Nobel Prize in economics in 2001 for their work. Read this report down through the section on George Akerlof. Summarize his research ideas in one page.

This chapter discusses how an understanding of adverse selection and moral hazard can help us better understand financial crises. The greatest financial crisis faced by the United States was the Great Depression from 1929 to 1933. Go to

www.amatecon.com/greatdepression.html

This site contains a brief discussion of the factors that led to the Great Depression. Provide a summary explaining how adverse selection and moral hazard contributed to the Great Depression.