According to some economists, the Phillips curve has flattened over the last decades.
That is, the empirical relationship between inflation and short-run output has weak-
ened. Assess the validity of the following explanations for this phenomenon, using
the model of the aggregate supply curve discussed in class:
(a) “The flattening of the Phillips curve is the result of output markets becoming
more competitive, implying that firms will not raise their prices as much when
demand increases.”
(b) “The flattening of the Phillips curve can be explained by the fact that the
number of firms in the services sector has increased compared to the number
of firms in the manufacturing sector.”