How does an Expansionary Fiscal Policy affect the Real GDP of an Economy?

Expansionary fiscal policy is usually financed by increased government borrowing – and selling bonds to the private sector.Keynes advocated expansionary fiscal policy should be used during a recession – when there is unemployment, surplus saving and falling real output. He argued this injection of government spending could stimulate economic activity and get the unemployed resources back into productive use. This enables the economy to recover more quickly than a laissez-faire attitude.A key issue of expansionary fiscal policy is the state of the economy. If expansionary fiscal policy is pursued when the economy is close to full capacity, then the increased government borrowing is likely to cause crowding out and/or contribute to higher inflation – but little increase in real GDP.In a deep recession, with spare capacity in the economy, expansionary fiscal policy won’t cause crowding out or inflation, but will instead increase rGDP as a result of increased output due to the shift in AD (Aggregate Demand).