impact effect

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The part of the effect of any economic event that acts immediately, or during a short time period. In the multiplier–accelerator 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, the change in the UK rules on mortgage tax relief for couples is widely seen as having boosted the house price boom of the late 1980s, though the eventual price effect was negligible.

Subjects: Economics.

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