Excess demand refers to a situation where the actual aggregate demand for output (AD2) is above the full employment level of output (AD1), then there exists excess demand. That is, if AD2 > AD1 (situation of Excess Demand)

In the figure, AD1 and AS represents the aggregate demand curve and aggregate supply curve respectively. The economy is at full employment equilibrium at point ' E ', where AD1 intersects AS curve. At this equilibrium point, OY represents full employment level and EY is aggregate demand at the full employment level of output.
Let us suppose that, the actual aggregate demand for output is FY, which is higher than EY. This implies that actual aggregate output demanded by the economy FY is more than the potential (full employment) aggregate output EY. Thus, the economy is facing surplus demand. This situation is termed as excess demand.
Reverse repo rate refers to the rate at which the Central Bank borrows from the commercial banks. In situation of excess demand, the Central Bank would increase the reverse repo rate. An increase in the reverse repo rate reduces the money supply in the economy, thereby aggregate demand falls.