Do you know these economic terms?

For many people, the words “interesting” and “economics” are rarely in the same sentence. But for financial aficionados like advisors, not only can economic topics be fascinating, they’re also useful in your everyday work.

Bloomberg columnist Noah Smith agrees, and suggests five economic terms everyone should use.

One such term is endogeneity, which occurs when you don’t know whether something is a cause, an effect or both, explains Smith. “For example, lots of people note that people who go to college tend to make more money. But how much of this is because college boosts earning power, and how much is because smarter, harder-working, better-connected people tend to go to college in the first place? It’s endogenous.”

Another term is marginal. Think of eating junk food: the first bite is delicious, but marginal tastiness drops as you get further down the cookie jar. If you prefer a more macro example, Smith writes, “Defenders of finance may say that the industry creates a lot of value, while detractors may say it could shrink without hurting the economy. Both could be true. Finance might create value on average, but be wasteful on the margin.”

Learn all of Smith’s terms here.

Need an economics refresher? Check out our Advisor to Client package, Everything you need to know about the economy.

And watch these videos to learn about supply and demand and fiscal policy.

Staff

The staff of Advisor.ca have been covering news for financial advisors since 1998.