A friend of mine told me that he believes that young people in his country have a reduced vocabulary, that is, their knowledge of their language is limited. Do "reduced vocabulary" or "low vocabulary" describe this situation or is there a better term?
As with any language, English has a number of ways to express certain ideas to make them sound better. In fact the word for this -- euphemism -- literally means "words that sounds pleasant" in the original Greek.
Reduced is one of those euphemisms that you can use in place of other adjectives, depending on context. For example, "reduced stature" instead of "short", or "reduced income" instead of "poor". The reason this sounds nice is because "reduced" implies that the reduction is an act of some nameless external agent, and not the fault of any particular person.
Limited can also be a euphemism, because it implies either a temporary state, which can be improved, or, again, an external limitation imposed by some agent.
Both "reduced vocabulary" and "limited vocabulary" are good, if euphemistic, expressions for the situation you describe. "Low vocabulary" is also fine, although I think "low vocabulary level" is more accurate.