The Importance Of Economic Growth

Definition

Entrepreneurship, economists, politicians, community leaders and citizenship are usually interested in the economic growth of a country and how it affects business cycles in the end. Mohr et al. (2015:410) define economic growth as the annual rate of increase in the total production or income in the economy while Noel, T. P. (2012) refers economic growth as an increase in the productive capacity of an economy as a result of which the economy is capable of producing additional quantities of goods and services.

The importance of economic growth

From economists’ perspective, economists must be able to analyze a country’s current economic environment. Mohr et al. (2015:410) state that the growth performance of the economy is measured

Both demand and supply factors are important in sustaining the growth of the economy. Mohr et al.( 2015:414) state that supply factor caused an expansion in the production capacity of the economy. Therefore, it requires an increase in both the quality and quantity of labor, capital, natural resources, and entrepreneurship. These four factors of production play an important role in the economy of each country but natural resources and capital explain the growth of the economy in many countries. Technology can also be the 5th factor of production because it allows the economy to overcome circumstances that are threats to the

These four phases contribute to real GDP and are categorized into two groups: a positive growth feature and a negative growth. Under positive growth feature, expansion’s real GDP increases, increasing economic activities with a decline in unemployment but keeping the rate positive. Businesses make overtime to meet the demand of products which help with the growth of the economy because economic activities are active in this phase. Consumer spending and business spending increases slowly with inflation that is moderate but starts decreasing. The trough is the second feature of a positive growth because its real GDP starts to increase from a decreasing phase. Businesses’ hire new people which lowers the rate of unemployment which is one of the triple threats in SA. While business and consumer spending increase due to job creation and equipment purchased to engage with work and inflation rate rise because of business spending. Peak and contraction are regarded as the two negative growth in the economy because economic activities are inactive. Peak, real GDP starts to decrease which affects business with a low unemployment rate and inflation increasing rapidly. Lastly, a contraction which is also known as a recession. South Africa is in this phase because its economic activities are on the negative side with GDP that is decreasing. This phase