Which of the following observations concerning the intermediation approach to measure the cost function of FIs is true?
A)It views FIs' outputs of services as having two underlying inputs.
B)Labor and capital are the only inputs.
C)It views the output as being produced by labor, capital and the funds used to produce intermediated services.
D)Premiums or reserves are viewed as an input in the banking and thrift industries.
E)None of the above.

Question

Quizplus · Accepted Answer

The intermediation approach views the output of FIs' services as being produced by labor, capital, and the funds used to produce intermediated services. Therefore, choice C is the correct observation. Choice A is incorrect because the intermediation approach views FIs' outputs of services as having three underlying inputs: labor, capital, and funds used to produce intermediated services. Choice B is incorrect because the intermediation approach views other inputs, such as funds used to produce intermediated services, besides labor and capital. Choice D is incorrect because premiums or reserves are not viewed as an input in the banking and thrift industries under the intermediation approach.

Which of the Following Observations Concerning the Intermediation Approach to Measure