Causation in banking co-operative context: Loan stoppage vs. deposit withdrawals — identify the correct cause–effect relationship with precise logical evaluation.
Verbal Reasoning
Cause and Effect
Difficulty: Easy
Choose an option
-
AStatement I is the cause and statement II is its effect
-
BStatement II is the cause and statement I is its effect
-
CBoth the statements I and II are independent causes
-
DBoth the statements I and II are effects of independent causes
-
EBoth the statements I and II are effects of some common cause
Answer
Correct Answer: Statement I is the cause and statement II is its effect
Explanation
Given data
- I: The local co-operative credit society stops giving loans to farmers immediately.
- II: Many members withdraw major portions of their deposits.
Concept/Approach
- Stopping lending reduces the institution's usefulness and signals risk, which can trigger deposit withdrawals.
Step-by-Step reasoning1) Lending halt (I) → perceived loss of benefits / trust.2) Members react by withdrawing deposits (II).3) Therefore (I) causes (II).
Verification/Alternative
- If (II) caused (I), withdrawals would precede and force loan stoppage; but I explicitly states a policy decision first.
Common pitfalls
- Assuming simultaneous independent shocks without necessity.
Final AnswerStatement I is the cause and statement II is its effect.