Expanding space, or moving galaxies?

Consider a bunch of beads evenly spaced on a long elastic string.

Suppose that you position yourself next to one of the beads and look to an adjacent bead and you see it moving away from you.

What’s happening? There are two possibilities:

  1. The adjacent bead is moving along the elastic string, away from you
  2. The elastic is being pulled

How would you know which is the case?

It is well-known that the galaxies are moving outward, away from our galaxy.  Are they actually moving, or is space expanding?

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