The secondary effects that occur as a result of increased income throughout the economy due to initial spending are called what?

• A. Induced impact
• B. Primary impact
• C. Direct impact
• D. Secondary impact

Answer: (A)

When income rises across the economy because of initial spending, the extra rounds of spending those higher incomes generate are called the induced impact. This reflects how people spend the additional income they receive, fueling more production and income in a continuing cycle. It’s the part of the overall economic effect that comes from households using their higher earnings to buy goods and services.

This differs from the direct impact, which is the initial spending itself, and from the indirect impact, which is the spending by suppliers and others in the production chain in response to that initial demand. So the induced impact is the best label for these secondary spending effects driven by increased income.