impact effect
impact effectThe part of the effect of any economic event that acts immediately, or during a short time period. In the multiplier model, for example, the impact effect of an injection of investment, government spending, or exports is 1 unit of further income for each unit spent. After leakages into tax payments, savings and imports, a second round of k units is created; then a further round of k2, and so on. The eventual multiplier effect adds up to 1/(1 − k), which is larger than the impact effect of 1. Some economic events have impact effects larger than their overall effects: for example, a temporary cut in VAT on cars would be expected to lead to planned car purchases being brought forward to take advantage of the tax saving, so its impact effect on the number of cars bought could exceed the eventual cumulative total effect.
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