CNN Effect is an interesting buzzword and describes a temporary shift in the style of consumer spending as a result of certain news. Generally, CNN Effect will reduce consumer spending. For example, news of terrorists’ activities or attack shall make people confine themselves in their homes and watching TV news. Naturally, this will result into less spending and less volumes of sales at the market place.
Arguably CNN Effect does not have any lasting impact on the economy as most of the essential goods will have to be bought – though it certainly has an effect to postpone certain class of purchases. Still, there may be segments where the impact shall be final – from example, the loss of customers to movies, theaters and restaurants are final and they will not be able to recover or compensate for the loss arising on account of the CNN Effect.