In the excess demand condition, which of the following measures may be adopted in the economy to control it?

(A) Increase in repo rate.
(B) Decrease in reverse repo rate.
(C) Sale of government securities in the open market.
(D) Increase in subsidies.

Choose the correct answer from the options given below:

(A) and (C) only

The correct answer is Option (2) → (A) and (C) only

(A) Increase in repo rate — True. When the repo rate is increased, borrowing becomes costlier for commercial banks, which reduces credit creation and money supply. This helps control excess demand and inflationary pressure.

(C) Sale of government securities in the open market — True. When the central bank sells government securities, it absorbs excess liquidity from the economy, reducing money supply and aggregate demand.

(B) Decrease in reverse repo rate — False. A decrease in reverse repo rate discourages banks from parking funds with the RBI, which increases liquidity and worsens excess demand.

(D) Increase in subsidies — False. Increasing subsidies raises disposable income and further increases demand, worsening the excess demand condition.