Supply multipliers in a centrally planned economy with a private sector

A simple model of a centrally planned economy is developed with a state sector and private sector, and with a supply constraint affecting state sector output. In such a model, a supply multiplier can be derived under the same conditions which would make an increase in state sector prices an effective means of reducing shortage. Moreover, a one-sector constrained equilibrium model of the state sector does not yield misleading results by ignoring the private sector; and the private sector price level is a reliable indicator of shortage in the economy.This paper was written while I was a visitor at the European University Institute, Badia Fiesolana, Florence. I am grateful to Mario Nuti for participating in the discussions which stimulated the paper and to the Institute itself for the facilities provided.Comments from Geoff Wyatt enabled me to make some useful improvement to the paper.