The increase in private investment spending induced by the increase in Government spending is known as

The increase in private investment spending induced by an increase in government spending is known as 'crowding in'. This phenomenon typically occurs when the economy is operating below full capacity or in a recession [1]. In such scenarios, expansionary fiscal policy creates a positive multiplier effect, increasing national income and aggregate demand, which in turn encourages firms to invest in new projects to meet the rising demand [1]. While 'crowding out' refers to the displacement of private investment due to higher interest rates or limited loanable funds caused by government borrowing [3], 'crowding in' highlights the complementary nature of public investment, especially in infrastructure, which enhances private sector productivity and profitability [2]. Therefore, when government spending stimulates economic growth and subsequently boosts private sector investment, it is termed the crowding-in effect.

Sources

1. [1] Indian Economy, Vivek Singh (7th ed. 2023-24) > Chapter 4: Government Budgeting > 4.8 Perspectives on Deficit and Debt > p. 158
2. [3] Indian Economy, Nitin Singhania .(ed 2nd 2021-22) > Chapter 5: Indian Tax Structure and Public Finance > Crowding Out > p. 117
3. [2] Indian Economy, Vivek Singh (7th ed. 2023-24) > Chapter 4: Government Budgeting > Findings from previous years Economic Surveys > p. 160