During the period of COVID, there was an apprehension that the Indian economy might slip into recession. Therefore, to combat the situation, the Reserve bank of India reduced the Repo rate by 110 basis points. Arrange the consequences of the same in sequential order.

(A) Increase in aggregate demand.
(B) Reduction in the market lending rate by commercial banks.
(C) Increase in money supply.
(D) Increase in borrowings by the public.

Choose the correct answer from the options given below:

(B), (D), (C), (A)

The correct answer is Option (4) → (B), (D), (C), (A)

1. Repo rate reduced by RBI → (B)

• When the RBI lowers the repo rate, commercial banks can borrow funds from the RBI at a cheaper rate.

• This leads to a reduction in market lending rates by commercial banks.

2. Reduction in lending rate → (D)

• As borrowing becomes cheaper, the public borrows more from banks for investment and consumption.

3. Increase in borrowings → (C)

• This leads to an increase in money supply in the economy because more funds are circulated through loans.

4. Increase in money supply → (A)

• With more money in circulation and higher spending, there is an increase in aggregate demand.