In late 2008, as it became clear that the United States was experiencing a recession, the Fed reduced its target for the federal funds rate to near zero, as part of a larger aggressively expansionary monetary policy stance (including what the Fed called quantitative easing). Most observers agreed that the Fed’s aggressive monetary expansion helped reduce the length and severity of the Great Recession.

a. What would rational expectations theorists say about this conclusion?

b. What would real business cycle theorists say?