Which of the following statements correctly explains the relationship between a budget deficit and economic outcomes in the context of fiscal policy?
1
A budget deficit always leads to inflation in an economy, regardless of other factors.
2
A budget deficit automatically results in a trade deficit due to increased import demand.
3
A large budget deficit can result in higher interest rates due to government borrowing, crowding out private investment.
4
Reducing a budget deficit always leads to increased employment in the short term.