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A good example of how expansionary fiscal policy works is through wars. During wars, government spending increases significantly, this causes a decrease in unemployment and a rise in the GDP. Unfortunately, this also causes an increase in the government deficit. World War II is a good illustration of the effect of expansionary fiscal policy.
World War II
In 1940, the year before the United States entered the war, the U.S. unemployment rate was at 14.6 percent, the GDP was at $99 billion dollars, and the deficit was $-2.7 billion dollars. In 1941, with the bombing of Pearl Harbor and the entry of the United States into World War II, the federal government mobilized its resources and increased spending...
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