Which of the following statements correctly describes the crowding-out effect in the context of expansionary fiscal policy?
1
It occurs when increased government spending leads to higher interest rates, which reduce private investment.
2
It refers to a situation where government borrowing leads to increased private investment by providing more funds in the financial market.
3
It describes the process where government spending directly replaces private consumption in the economy.
4
It refers to a scenario where expansionary fiscal policy leads to lower unemployment without affecting private investment.