Macroeconomic stability does not single-handedly assure high rates of economic growth. Factors such as unemployment, inflation, national income, and economic growth and development are the most important determinants of economic prosperity at the macro level (Driessen 2001 p. 40). Economic growth and development is one of the macroeconomic issues with considerable impact on the overall GDP of an economy. A country attains economic growth when there is positive change in the level of production of goods and services over a given period. The nature of change in the level of production would be an essential ingredient to determine whether the outcome is a nominal or real growth (Driessen 2001 p. 40). A nominal growth is a type of economic growth that includes inflation whilst real growth means the nominal growth minus inflation. Technological inventions and innovations as well as positive external forces are generally responsible for the economic growth and development of any country. This is in disregard to the level of growth or technological progress since all countries around the world endeavor to surpass the production needs of citizens. In essence, many countries feel secure when they produce more than the citizens can consume resulting to a surplus. The country would then export the surpluses to other countries thus earning foreign exchange (Driessen 2001 p. 40).
Economic development refers to sustained and intensive actions of policymakers as well as communities that aim to improve the economic health and living standards of the people in a given locality (Shuford Rynne & Mueller 2010 p. 101). According to Michael Todaro, economic development means increase in the living condition of the people, promoting the self-esteem needs of the citizens, and creating a free and just society. Economies not only require positive changes in production levels but they also have to consider sustainability of the growth and development strategies (Shuford Rynne & Mueller 2010 p. 101). Besides, economic development will only turn out to be a reality when each citizen irrespective of race, color, or cultural orientation. Many scholars view economic growth as a sub-category of economic development. In general, economic growth is all about the general increase in the output of a country's products and services (Shuford Rynne & Mueller 2010 p. 101). Economic development is actually a government policy that aims at increasing the social welfare, economic, and ensuring a stable political environment. It would be an important venture if the whole nation gave their best towards achieving the projected economic development. Modernization and industrial development are some of the steps that are necessary for any country to realize both its short-term and long-term projections in terms of economic development (Shuford Rynne & Mueller 2010 p. 101).
Significance of the Problem
Economic growth is one of the prerequisites towards realization of economic development. People venture into various activities in the hope of boosting their livelihoods. For instance, a section of residents operates small and medium enterprises (SMEs) while others engage in major businesses (Binit 2007 p. 1). Others are agriculturalists dealing in cereals and horticulture among other forms of agricultural products. Economic growth will therefore bring business opportunities to the country and the effects of such growth quickly spill over to other vital sectors of economy. The profits obtained would settle expenses of generation, education, improve access to healthcare among the locals, and promoting the general standards of living of family members (Binit 2007 p. 1). The country attains economic development in the event that such trend replicates itself in every household. Economic growth as well as economic development leads to substantial improvements in various sectors of economy. Political class, economists, policymakers, and civilians must support economic development in totality (Binit 2007 p. 1). However, when a section of the population attempts to thwart development activities already achieved, then the country would face crisis as far as economic progress is concerned. Economic development will also result in creation of several opportunities in various sectors of the economy such as healthcare, human development, research, education, and environmental conservation. Successful achievement of economic growth and economic development would imply an increase in the per capita income of every citizen of a country (Binit 2007 p. 1).
Economies have unique strategies of attaining growth economically. At the same time, they initiate ideal approaches to curbing risks that might lead to low levels of output or no production at all (Driessen 2001 p. 40). Economists, policymakers, the civilians, and political elite play imperative role toward making sure the country remains on its development course. Political upheavals and civilian unrest would be a perfect ingredient that would frustrate all production and development plans of a country. Political instability will scare away both the local and foreign investors because they always feel such countries are not safe or secure for doing business (Driessen 2001 p. 40). In general, investors will only consider doing business in sectors and locations that are worth it. By all standards, nobody would want to invest in an area that does not promise any tangible progress. In effect, local and foreign companies would relocate to countries that are more secure and promising in terms of economic growth and development (Driessen 2001 p. 40).
Constructive policies attract investors because they not only assure them of secure business environment but also opportunity for expansion in future. For instance, taxation policies should never be harsh on the business community since high taxation rates among other legal formalities have the potential to scare them away (Driessen 2001 p. 40). Most of them would therefore seek business refuge in countries that charge taxes, trading licenses and other formalities at prices that are manageable. Failure of an economy's total production to keep pace would ensue. The country would thus not realize its macroeconomic goal of economic growth. A comprehensible analysis of the quantity as well as quality of resources used for production would help in understanding the origin of stagnated growth. The quantities of the four factors of production (capital, land, labor, and entrepreneurship) can be a boost or a restriction to growth of production (Driessen 2001 p. 40). The quantity of labor derives its basis on the portion of the population that is willing and able to work. Should there be a decline in quantity of overall population or portion of the population with relevant knowledge and skills, then growth is unlikely to keep pace with expectations. The quantity of labor would decline to considerable amount if citizens quit real jobs and just stay around. Similarly, the quantity of capital would depend on the amount of expenditures on investment. People would invest only if they get an assurance of safety and security of their investments (Driessen 2001 p. 40).
The economy is likely to record very little growth if investment expenditure continues to decline for a given period for whatever reasons. In most cases, local and foreign investors reduce their investment expenditures or even decline to invest altogether due to political upheavals, unfavorable taxation policies, and harsh environments for their businesses (Smithers 2000 p. 24). The quality of the four resources may also contribute immensely to increase or even a decline in output. In most cases, technology and education have proven to the most outstanding factors or resources for a company increase its production levels. In the contemporary business world, countries that still employ ancient technologies in production are likely to accomplish little growth (Smithers 2000 p. 24). This could be because of allocating fewer resources to scientific research and development. In the end, such a country proves incapable of keeping pace with the output levels of those that employ modern and more sophisticated technologies. Inadequate resources to education sector would certainly compromise resource quality (Smithers 2000 p. 24).
The Growth Domestic Product (GDP) in the U.S. expanded 1.60% during the 4th quarter of 2012 over the same quarter of the previous year. This is according to the Bureau of Economic Analysis reports. The country's GDP Annual Growth Rate averaged 3.22 between 1948 and 2012. It reached an all time high of 13.40 in the 1950. Despite being the largest economy worldwide, its GDP had once reached a record low of -4.60% in the month of June 2009 (Smithers 2000 p. 24). The upbeat growth rate of the American economy has mainly been a result of an increase in the levels of production owing to application of the modern and sophisticated forms of technology. The country has invested heavily in the manufacturing and service industries, which has resulted into substantial growth and developments of the economy. The United States of America obtains its raw materials from its fast growing industries from south America, Africa, and locally. The U.S. exports its products to Europe, South America, Africa, and Asian continent. Despite the wide range of challenges facing global market, America has stood as one of the most stable economy with a wide range of technologies that has influenced production and service processes worldwide (Smithers 2000 p. 24).