The local co-operative credit society has decided to stop giving loans to…

Concept: In a statement-based cause-and-effect question, two events are given and their relationship must be classified into exactly one of four categories: the first statement causes the second, the second causes the first, both statements are themselves independent causes with no link between the two, or both statements are effects -- each produced by its own separate, unstated cause, so the two events are unrelated to each other. A direct cause-effect pair exists only when one event supplies a sufficient, direct mechanism for the other, and that mechanism runs in only one direction.

Application:

1. Statement II says a large number of members withdrew a major part of their deposits from the credit society.

2. A cooperative credit society lends money out of the deposits it holds; the deposits collected are its primary lendable funds.

3. When a large chunk of those deposits is withdrawn, the funds available for issuing fresh loans shrink sharply.

4. Statement I -- the society stopping loans to farmers with immediate effect -- is exactly the outcome that a shortage of lendable funds produces.

5. So Statement II supplies a direct, sufficient mechanism for Statement I: the withdrawal (II) is the cause, and the loan freeze (I) is its effect.

Cross-check: Testing the reverse direction rules out the mirror option: a decision to stop issuing new loans to farmers gives current depositors no direct financial reason to withdraw their own savings, so Statement I cannot be the cause of Statement II. The two statements are also not unrelated to each other -- one statement directly supplies the mechanism for the other -- so neither the 'both are independent causes' category nor the 'both are effects of separate, unrelated causes' category fits; a genuine causal link is present.

Why the other options fail:

• Statement I as cause, Statement II as effect -- fails because there is no mechanism by which stopping loans triggers withdrawals.

• Both are independent causes -- fails because it treats the two statements themselves as unrelated causes, but one statement directly explains the other rather than the two being unconnected.

• Both are effects of independent (separate, unrelated) causes -- fails because it treats the withdrawal and the loan freeze as mere coincidence, each with its own unstated cause; the scenario instead gives a direct financial link between them.