Analysis of the Theory of Cycle of Money

Abstract

Abstract This study investigates the Theory of Cycle of Money. The concept of this theory is based on the distribution of money in an economy and shows that it is plausible to have a positive effect on an economy by the appropriate public and tax policy (when is applied the cycle of money). The dynamic of each economy is represented by the concept of the cycle of money. The multiple times that money is used and reused to a country’s economy, without getting out to external economies and banking systems, clarifies the robustness of this economy. Therefore, to this analysis are determined the appropriate tax policies in connection with the savings of the companies of controlled (the companies of transfer pricing administrate their taxation with the allocation of profits and losses to maximize their benefits) and uncontrolled transactions (the companies are not participating in allocations to administrate their profits and losses). This theory is based on the approach that small and medium enterprises must have lower taxes than larger and international companies that substitute the activities of these companies. Moreover, the only large economic units that should have low taxes are the factories and know-how technological companies. In that way, a society could achieve its best well-being standards, as this is a theory that completely sought social welfare. This article aims to clarify the Theory of Cycle of Money and its importance for the robustness of the economy, and the prosperity of the society and citizens. The current study applies the Q.E. method and its econometric approach.