Which of the following is NOT a cause of inflation?

Step 1: Analyze the question You are asked to find the option that is NOT a cause of inflation. Inflation is a persistent rise in the general price level, usually caused by too much money chasing too few goods (demand-pull) or by rising production costs (cost-push).

Step 2: Explain the concept Inflation arises from:

• Demand-pull factors: more money in circulation or higher spending without a matching rise in output.
• Cost-push factors: higher costs of production, such as wages and raw materials, which push prices up.
• Monetary factors: an increase in the money supply.

Step 3: Check each option

• A. Excessive bank lending: This increases the money supply and spending power, so it causes inflation.
• B. Excessive deficit financing: When the government prints money or borrows heavily to cover a deficit, the money supply grows. This causes inflation.
• C. Increase in domestic productivity: Higher productivity means more goods and services are produced and costs per unit fall. Greater supply tends to lower or stabilize prices, so this does NOT cause inflation. It is actually a remedy for inflation.
• D. Increase in wages and salaries: Workers have more money to spend (demand-pull), and firms face higher costs (cost-push). This causes inflation.
• E. Increase in government expenditure: This raises aggregate demand and, if not matched by output, pushes prices up.

Step 4: Answer The option that is NOT a cause of inflation is C. increase in domestic productivity.

Exam Tip: For "which is NOT a cause of inflation" questions, look for the option that increases supply or output (such as higher productivity, more imports, or increased production). Everything that increases money supply, spending, or costs causes inflation, while anything that increases the supply of goods reduces it.