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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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Macroeconomics – Inflation and Price Stability

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The overall level of prices in an economy adjusts to bring money supply and money demand into balance. When the central bank increases the supply of money, it causes the price level to rise. Persistent growth in the quantity of money supplied leads to continuing inflation.
A government can pay for some of its spending simply by printing money. When countries rely heavily on this ‘inflation tax’, the result is hyperinflation.
Many people think that inflation makes them poorer because it raises the cost of what they buy. This view is a fallacy, however, because inflation also raises nominal incomes.
Economists have identified six costs of inflation: shoe leather costs associated with reduced money holdings; menu costs associated with more frequent adjustment of prices; increased variability of relative prices; unintended changes in tax liabilities due to non-indexation of the tax system; confusion and inconvenience resulting from a changing unit of account; and arbitrary redistributions of wealth between debtors and creditors. Many of these costs are large during hyperinflation, but the size of these costs for moderate inflation is less clear.
The Phillips curve describes a negative relationship between inflation and unemployment. By expanding aggregate demand, policy makers can choose a point on the Phillips curve with higher inflation and lower unemployment. By contracting aggregate demand, policy makers can choose a point on the Phillips curve with lower inflation and higher unemployment.
The trade-off between inflation and unemployment described by the Phillips curve holds only in the short run. In the long run, expected inflation adjusts to changes in actual inflation, and the short-run Phillips curve shifts. As a result, the longrun Phillips curve is vertical at the natural rate of unemployment.
The short-run Phillips curve also shifts because of shocks to aggregate supply. An adverse supply shock, such as the increase in world oil prices during the 1970s, gives policy makers a less favourable trade-off between inflation and unemployment. That is, after an adverse supply shock, policy makers have to accept a higher rate of inflation for any given rate of unemployment, or a higher rate of unemployment for any given rate of inflation.
When the central bank contracts growth in the money supply to reduce inflation, it moves the economy along the short-run Phillips curve, which results in temporarily high unemployment. The cost of disinflation depends on how quickly expectations of inflation fall. Some economists argue that a credible commitment to low inflation can reduce the cost of disinflation by inducing a quick adjustment of expectations.

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