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:

Option 1 -> Incorrect sequence - aggregate demand increases at the end, not first.

Option 2 -> Incorrect sequence - money supply increases after borrowings increase, not before lending rate reduction.

Option 3 -> Incorrect sequence - aggregate demand should be the final consequence, not borrowings leading to money supply increase.

Option 4 -> Correct sequence following the monetary transmission mechanism.

Hence, Option 4: (B), (D), (C), (A) -> When RBI reduces the Repo rate, the monetary transmission mechanism works as follows: First, (B) Commercial banks reduce their market lending rates since they can now borrow from RBI at lower costs. Second, (D) Public increases borrowings as loans become cheaper and more attractive. Third, (C) Money supply increases through credit creation when banks lend more to the public. Finally, (A) Aggregate demand increases as consumers and businesses have more purchasing power due to increased money circulation in the economy. This expansionary monetary policy helps combat recession by stimulating economic activity. -> correct