Which of the following observations concerning the intermediation approach to measure the cost function of FIs is true?

Question

Quizplus · Accepted Answer

The intermediation approach views FIs' output of services as being produced by three inputs: labor, capital and funds used to produce intermediated services. This approach considers FIs as intermediaries between savers and borrowers, where funds from savers (input) are used to lend to borrowers (output) through the services provided by FIs. Therefore, funds are considered as an input in this approach, which sets it apart from the traditional production approach that considers only labor and capital as inputs.

Which of the Following Observations Concerning the Intermediation Approach to Measure