Page 30 - Azerbaijan State University of Economics

THE JOURNAL OF ECONOMIC SCIENCES: THEORY AND PRACTICE, V.73, # 1, 2016, pp. 4-37

looses its former macroeconomic substance and converts to the equation of the
macroeconomic type, not capable of solving the Granberg problem set:
(Formula 3)

Where vn - money velocity.
Formula 3 has none of the physical measurements and thus represents the
monetary value, only. A. Smith who affirmed that labor is the sole source of
measuring the annual income, herewith, happened to contradict his own self. And
also, his followers, in order to estimate the real volume of the final product, now, use
the specific parameter, in the form of the GDP deflator, (inflation).
Indeed, the GDP deflator (inflation) in official statistics, as defined on the
basis of the index of physical volumes of goods and services (IFO) is a universal
economic indicator, necessary for setting the dynamics of market prices on goods
and services in real economy. It is also needed for setting the dynamics of the
purchasing power of money in the fiscal and monetary systems, parallel in time.
Since the GDP deflator serves the basis of the balance of the nominal and real
GDP - NGDP = рb*RGDP, formula 3 defines NGDP = vn*М, then we may derive
the following:
рb*RGDP =vn*M (Formula 4)
In Formula 4, money velocity vn is itself the function which is
depended on the money velocity of profit vx and velocity of money circulation on
the interim product vz: vn= = vx - vz or which is the same as in:

vn = vx - vz. (Formula 5)
Thus, Formula 5, which links the velocity of money mass circulation vn with
the turnover of the nominal GDP, and with the goods designed for the interim
consumption - the indicators of profit Цт * Кт are then: in the direct
interconnection with the indicators of consumption of the interim products QP and
the nominal GDP.
Now, on the basis of Formula 5, an opportunity has again arisen for us to create
an able instrument, which transforms real economy into the locomotive of sustainable
development, a prices-based GDP deflator (inflation) and the purchasing power of
money, i.e. the key indicators of management of innovation-based investing.
In the meantime, as Mr. A. Ulukayev, Minister of Economic Development of
the Russian Federation, has pointed out that the level of inflation is being
‗prescribed by the impact of the shift of the devaluation‘. The inflation, warmed up
by the shift of the devaluation, distorts the real growth of the economy and
negatively impacts the real wages and incomes. Such distorted situation is created in

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