306 PONTIFICIAE ACADEMIAE SCIENTIARVM SCRIPTA VARIA 
We propose to work with the following simplifying assump- 
tions concerning the structure of the economv considered. 
Assumption 1. The capacity to produce of the economy is 
assumed to be proportional to the stock of capital, i.e. equal 
to aK, where ‘a’ is a constant over time. We shall assume that 
population and total labor force are constants and that the 
part of total labor force employed at any time is a function 
of the part of total capacity actually in use. The coefficient a, 
therefore, includes also the effect of labor input. (More spe- 
cifically, if N is the total (constant) labor force, N actual 
employment, and x actual total output, we could assume that 
N/N is equal to x/aK). 
Assumption 2. The propensity to consume of the private 
sector is given by 
(2.4) 
Xp=0V + 
3 
where a and {3 are constants over time, and such that o<<a<(1 
and 8>o. 
Assumption 3. Public consumption, xo, is assumed to be 
proportional to the size of the economy as measured by its 
production capacity. We thus have 
(2.5) 
Xa=%aK 
where y is a constant over time. 
Regarding the coefficients a, «, B, Ÿ and the initial value 
of K, we shall assume that a(z - v)aK + + yaK<aK, i.e. that 
the maximum rate of public and private consumption does 
not exceed capacity (cf. Assumption 4 below). 
8] Haavelmo - pag. 4