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Multiplier Effect and Tariffs - Lesson Summary
Factor mobility refers to the free movement of the factors of production such as labor and capital, across national borders.
Complementarity refers to the fact that factor mobility that comes through foreign direct investments may stimulate foreign trade because of the need for equipment, components and complementary products in the destination country.
An investment multiplier refers to the ratio of change in the equilibrium income and the change in investment that causes it.
Income propagation is a multiplier concept which states that the income spread is a natural process. It states that the increase in employment, income and output is due to the increase in investment.
The foreign trade multiplier refers to the amount by which the national income of a country will be raised due to a unit increase in the domestic investment on exports.
The foreign trade multiplier is based on the assumption that exports and investments are independent of changes in the national income level. However in reality this is not the case, a rise in exports does not always lead to an increase in the national income.
The foreign trade multiplier is equal to the reciprocal of the marginal propensity to save plus the marginal propensity to import.
Commercial Policy is an umbrella term that describes the regulations and policies that dictate how companies and individuals in one country conduct commerce with companies and individuals in another country.
The import duties which may vary with the prices of commodities are called sliding scale duties.
An export subsidy is a government policy that is used to encourage the export of goods and discourage the sale of goods on the domestic market through direct payments, low-cost loans, tax relief for exporters and government-financed international advertising.
Dumping refers to the situation where exporters attempt to capture foreign markets by selling goods at rock bottom prices.
A non-tariff barrier is any barrier other than a tariff that raises an obstacle to the free flow of goods in overseas markets.
An embargo is a government order that restricts commerce with a specified country or the exchange of specific goods.
Trade protectionism is an economic policy that restrains unfair competition from foreign industries.