SEMAINE D’ETUDE SUR LE ROLE DE L’ANALYSE ECONOMETRIQUE ETC.

507

Assumption 4. The level of public investment activity is
assumed to be proportional to total « desired savings » in the
economy when operating at full capacity. The meaning of this
needs a little further explanation. Available resources at full
capacity, after allowing for public consumption xo, is equal
'o (1-ÿ)aK. If an income corresponding to this flow of
resources were at the disposal of consumers, they would want
to spend «(1 - Y)aK +f of it for xp. The remainder, available
for public and private investment activity, would be equal to
(1—a)(1—7y)aK—_ (which is assumed to be initially positive).
Our « assumption 4 » can then be written as

2 6)

«
Ro -

5 j\a —0)(1—y)aK—5

where 8 is a constant over time. Alternative levels of à (including
 &=o or &=1) may be considered.
Under the specifications describing the details of Assumption
 4 the maximum flow of production available for private
investment would be 7 gM NAN TU

More special assumptions concerning the nature of fiscal
policy on the one hand, and the nature of private investment
activity on the other hand will be introduced in Section 4.
The simplifying assumptions introduced above are, of
course, very drastic and grossly unrealistic in many aspects. In
one respect, however, they are not disturbingly unrealistic,
namely in their degree of similarity to the kind of models on
which much of the theory of fiscal measures for full employment
is based. If this is correct, it would seem of interest and fair
enough to study the efficiency of fiscal policy under the assumptions
 that we have introduced.

Haavelmo - pag. _