508 PONTIFICIAE ACADEMIAE SCIENTIARVM SCRIPTA VARIA - 28 
pe 
3. SOME PRELIMINARY CONCLUSIONS CONCERNING THE CONSE- 
QUENCES OF THE « OLD » VS THE « NEW » FiscAL PoLicy 
On the basis of the — as yet incomplete — model above it 
is possible to illustrate the differences between the « old » and 
the « new » ideas of fiscal policy and to bring out some of their 
striking characteristics. 
We shall regard private investment, kp, as the independent 
and freely variable element of the model and study the con- 
sequences of variations in this part of total activity. 
Let us define « old-fashioned » fiscal policy as a policy 
where m is kept constantly equal to zero. (It may perhaps 
also be reasonable to assume that this policy would be coupled 
with a state of affairs where 3, indicating the public part of 
investment activity, is rather small.) From (2.2) and (2.4) 
we then derive the now rather « threadbare » textbook relation 
(3.1) 
T — 
Y 
(m=0o) 
provided, of course, that x=xp+x0+kp+ko<aK. This 
« classical » relation of a neutral fiscal policy shows one pro- 
perty that would make good common sense to most people, 
viz. that when the economy is in a state of stagnation or slow 
progress (i.e. kp small), then people do not feel that they can 
spend much on consumption either. The senseless aspect of 
the situation is, of course, that both xp and kp may be far below 
the level that available capacity permits. 
The « new » type of fiscal policy, on the other hand, can 
be illustrated by requiring that xp+ xo + ke + ka=aK. which 
81 Haavelmo - pag. 6