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Aa to t.he way In whłch t.he a ta te co u ld poai t.i vftly affeot. privat.fi ftxpfiotat.1ona, an example młght be that. governmenta make 1t. knnwn that 1t. i s t. h e i r firm In tent. łon not to tolfirat.fi any 1 o n g e r 1 e v e 1 a of nneraployment. beyond a oert.aln t. h r e a h o 1 d , and that t.hey will fol 1 ow t.he requ1red expana1ve poił ci ea to ach1eve anch an ohject. ive. An 1 11 u a t. rat. 1on of a aat. łafact.ory policy    of    t.hla    kind may    be t.he . followłng. The government

at.at.ea    1n    an u n a m b 1 gnou a    way    that. In t.he next., say, f1ve

yeara no rat.ea of u nemp 1 oymęn t. hlgher .t.han, say, four per cent. w1 1 1 be t. olerat. ed; (1 ) In order t.o aoh1eve t.hla obje.ct.1ve, act.1ve expanaive policiea are nndertaken. Theae poi idea, ai* t.o expand aggregat.e demand and a 1 1 ow for ¹ rewarda '    (e.g. t.ax

rebatea, etc.) ’ to t.he heneflt of thoae f i ns whłch hehave In t.he ¹ rlght. way', 1.e. t.hey expand t.helr capaclt.y and labour de»and in an efficient. way.

Aa t.o t.he meaaures t.o expand demand, t.hey have t.o be anch t.hat. firma perce1ve that the Increaae In t.he demand for t.helr out.put.R w1 1 1 be permanent. and not. errat.1c. To t.hla pnrpoae, t.he government.    could rely    on a    morę ext.enaive uae of long-

wlt.h firma    -or,    het.t.er, poola of firma- whłch

anpply gooda and aervicea t.o t.he pnblłc aect.or In connect.lon włt.h clearly at.at.ed long-t.erm programmea. Tt. ła the long-term nat.nre of t.he cont.ract.a and t.helr connect.lon to large long-t.erm programmea whłch are moat. łmportant, In t.hat.    t.hla

at.rat.egy woni d morę eaally engender reaaoriably cert.ałn expecf.af.1ona for a relat.1vely long apan of t.ime. The at. 1p n lat łon of a long run cont.ract. ahould in 11. aelf induce firma t.o włden thełr product.1ve capaclt.y; eapecłally łf t.he cont.ract. la defined In t.erma of t.hlnga t.o be done rat.ber t.han In t.erma of a g1ven amount. of    money.    However, f.here i a t.he

poaalbllit.y t.hat    firma could    play    bet.a npon    pricea,

contr i hut. 1 ng In anch a way t.o t.he deflat. łon of t.he acheduled expend1 t.nre.

The main problem i a t.hat. long-term cont.ract.a uaually prov1de clauaea for t.he revłaion of pricea. Such clanaea can be nt.111zed for hett.lng npon pricea and t.h 1 a ahould be avoided. The way out. from t.hła danger ła głven by t.he poaa1h1!1t.y of 1nclud1ng in t.he cont.ract. clauaea whłch reward, t.hrough approprłat.e fłacal rebatea, behavłoura whłch favonr t.he Increaae in real ont.pnt. and prodnct.1 ve capaclt.y. The fulfłllroent. of f.hia t.arget. la poaałhle, uałng t.he aame mechaniama t.hat. have been deacrlbfid ahove wlt.h regard to poaałhle fłacal automat i c i ncenti vea t.o t.he expanaion of real ont.pnt.. Tn t.hła caae, however, one could thłnk alao of t.he poaałbłllt.y t.o puniah łnflat. lonary behavłonra.

The firma, or t.he poola of firma , łnvolved łn cont.ract.a concernlng long-run    programmea,    ahould    accept. a    regime of

apecłal account.łng,    allowłng for    t.he 1 n f or ma t. i ona 1    control of

the pricea of out.pnt.a and łnpuf.a involved In t.he proceaa of i mp 1 ement.a 1.1 on of t.he cont.ract.a. The reviałon of pricea

(1) Th ł a four per cent. t.arget. could, for example, be eat.ablłahed by referrłng t.o t.he ¹ Ruropean average employment-rat.fi t.arget.' we envłfiaged above.