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MANAGING PROJECTS

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Projects represent nonroutine business activities that often have long-term strategic ramifications for a firm. In this chapter, we examined how projects differ from routine business activities and discussed the major phases of projects. We noted how environmental changes have resulted in increased attention being paid to projects and project management over the past decade. In the second half of the chapter, we introduced some basic tools that businesses can use when planning for and controlling projects. Both Gantt charts and network diagrams give managers a visual picture of how a project is going. Network diagrams have the added advantage of showing the precedence between activities, as well as the critical path(s). We wrapped up the chapter by showing how these concepts are embedded in inexpensive yet powerful software packages such as Microsoft Project. If you want to learn more about project management, we encourage you to take a look at the Web site for the Proj...
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Aggregate Demand and Aggregate Supply

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All societies experience short-run economic fluctuations around long-run trends. These fluctuations are irregular and largely unpredictable. When recessions do occur, real GDP and other measures of income, spending and production fall, and unemployment rises.
Economists analyze short-run economic fluctuations using the model of aggregate demand and aggregate supply. According to this model, the output of goods and services and the overall level of prices adjust to balance aggregate demand and aggregate supply.
The aggregate demand curve slopes downward for three reasons. First, a lower price level raises the real value of households’ money holdings, which stimulates consumer spending. Secondly, a lower price level reduces the quantity of money households’ demand; as households try to convert money into interest-bearing assets, interest rates fall, which stimulates investment spending. Thirdly, as a lower price level reduces interest rates, the local currency depreciates in the market for foreign currency exchange, which stimulates net exports.
Any event or policy that raises consumption, investment, government purchases or net exports at a given price level increases aggregate demand. Any event or policy that reduces consumption, investment, government purchases or net exports at a given price level decreases aggregate demand.
The long-run aggregate supply curve is vertical. In the long run, the quantity of goods and services supplied depends on the economy’s labour, capital, natural resources and technology, but not on the overall level of prices.
Three theories have been proposed to explain the upward slope of the short-run aggregate supply curve. According to the sticky wage theory, an unexpected fall in the price level temporarily raises real wages, which induces firms to reduce employment and production. According to the sticky price theory, an unexpected fall in the price level leaves some firms with prices that are temporarily too high, which reduces their sales and causes them to cut back production. According to the misperceptions theory, an unexpected fall in the price level leads suppliers to mistakenly believe that their relative prices have fallen, which induces them to reduce production. All three theories imply that output deviates from its natural rate when the price level deviates from the price level that people expected.
Events that alter the economy’s ability to produce output, such as changes in labour, capital, natural resources or technology, shift the short-run aggregate supply curve (and may shift the long-run aggregate supply curve as well). In addition, the position of the short-run aggregate supply curve depends on the expected price level.
One possible cause of economic fluctuations is a shift in aggregate demand. When the aggregate demand curve shifts to the left, for instance, output and prices fall in the short run. Over time, as a change in the expected price level causes wages, prices and perceptions to adjust, the short-run aggregate supply curve shifts to the right, and the economy returns to its natural rate of output at a new, lower price level.
A second possible cause of economic fluctuations is a shift in aggregate supply. When the aggregate supply curve shifts to the left, the short-run effect is falling output and rising prices – a combination called stagflation. Over time, as wages, prices and perceptions adjust, the price level falls back to its original level, and output recovers.

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