Aggregate demand is total demand for final goods and services that all sectors of the economy are planning to buy at a given level of income during a given period of time. Aggregate demand is affected by actions of RBI. The central bank on 27th March, 2020 reduced the repo rate by a whopping 75 basis points, bringing it down to 4.4 per cent, as a response to the coronavirus-induced crisis. The repo rate thus fell to the lowest ever. Before this, it had hit the lowest point of 4.74% in April 2009 in the wake of the financial crisis of 2008. Cash reserve ratio or CRR was also cut by the RBI by 100 basis points and reduced to 3 per cent with effect from March 28. This unlocked Rs 1.37 lakh crore primary liquidity in the banking system. The reverse repo rate was also lowered by 90 basis points. This affects the aggregate demand in the economy.

Increase or decrease in tax rate is a part of which policy?

Fiscal policy

The correct answer is option 2: Fiscal policy

Fiscal policy is prepared by the government. It includes subsidy, taxation, welfare expenditure, etc. Fiscal policy involves changes in government spending and taxation to influence the economy. Adjustments in tax rates are used to manage economic activity, control inflation, and stimulate or slow down the economy.