What is the term for the reduction in private sector investment due to increased government spending?

The term for the reduction in private sector investment due to increased government spending is known as "crowding out." This phenomenon occurs when government spending leads to higher interest rates, making it more expensive for the private sector to borrow money. As a result, private businesses may reduce their investment in projects or expansion because the higher costs deter them. Crowding out illustrates a critical aspect of fiscal policy and its impact on the economy, highlighting the interplay between government actions and private sector behavior.

Understanding this concept is essential as it underscores the potential limits of government intervention: while government spending can stimulate the economy, it can also unintentionally lead to reduced investment from the private sector, which is vital for long-term economic growth. The other terms mentioned do not capture this specific interaction between government spending and private investment.