By modelling the private sector on the basis of self-employment, rather than the wage employment assumed by Hare (1987), we are able to proceed without making strong restrictions on functional forms. Our main conclusion is that the supply multiplier equationis affected by the inclusion of the private sector. The immediate effect of an increase in state sector goods purchases by the government is that there is an equal reduction in the amount of state sector goods available for the household sector. This is assumed to affect household demand for private sector output and household supply of labour to the private sector (as well as affecting household labour to the state sector, as in the Barro-Grossman model). The change in labour supply to the private sector affects the supply of goods by the private sector. The net result is that an excess demand (or supply) is created for private sector output and so the price of this output rises (or falls). In general, a change in private sector price leads to a change in state sector labour supply and output, a result, which, by definition, does not occur if the private sector is not included in the model. Thus, the supply multiplier in general takes a different value from that found by Barro and Grossman.