Arrange the following sequence related to the correction of Excess Demand in correct order :

(A) Increase in Bank Rate by RBI

(B) Problem of excess demand will be corrected

(C) Public will borrow less

(D) Decreases money supply

(E) Loans taken by commercial banks will become costlier/expensive

Choose the correct answer from the options given below :

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

The correct answer is option (2) : (A), (E), (C), (D), (B)

Here's the explanation for each step:

• (A) Increase in Bank Rate by RBI: When the Reserve Bank of India (RBI) increases the bank rate, it becomes more expensive for commercial banks to borrow from the RBI.
• (E) Loans taken by commercial banks will become costlier/expensive: As a result of the increased bank rate, commercial banks raise their lending rates to borrowers.
• (C) Public will borrow less: With higher interest rates, the public tends to borrow less for consumption and investment purposes.
• (D) Decreases money supply: Higher lending rates reduce borrowing by businesses and individuals, leading to a decrease in the money supply in the economy.
• (B) Problem of excess demand will be corrected: The overall effect of these steps is a reduction in aggregate demand in the economy, which helps to correct the problem of excess demand.