Question:
Given below is a pair of events I and II. You have to decide their nature of relationship. Assume that the given information is correct and final.
I. Financial Institutions are largely unregulated
II. Today, world is passing through a serious phase of economic crisis
Given below is a pair of events I and II. You have to decide their nature of relationship. Assume that the given information is correct and final.
I. Financial Institutions are largely unregulated
II. Today, world is passing through a serious phase of economic crisis
I. Financial Institutions are largely unregulated
II. Today, world is passing through a serious phase of economic crisis
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One statement is a standing condition and the other is something happening now. Also remember that a crash normally leads to more rules, not fewer.
Updated On: Jul 17, 2026
- I is the main cause and II is the main effect
- I is effect but II is not the main cause
- II is the main cause and I is the main effect
- II is an effect but I is not the main cause
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The Correct Option is A
Solution and Explanation
Step 1: Understanding the Question:
Event I says financial institutions are largely unregulated. Event II says the world is passing through a serious economic crisis. We must decide the direction of causation.
Step 2: Key Approach:
Ask which event describes a standing condition and which describes an outcome. A condition that has been in place for a while can cause an outcome; an outcome cannot reach back and create the condition.
Step 3: Detailed Explanation:
Regulation of financial institutions means rules on how much they may lend, how much capital they must hold against losses, and what risks they may take. These rules exist to keep banks and lenders from gambling with other people's money.
If that oversight is weak, lenders chase high returns, take on risk they cannot absorb, and build up bad loans. When those bets fail, the losses spread from one institution to another through the credit chain, credit dries up, businesses cannot borrow, and the wider economy stalls. That is what an economic crisis looks like. So light regulation is a standing condition that can produce a crisis. I causes II.
Test the reverse. Could an economic crisis make financial institutions unregulated? A crisis usually does the opposite. Governments respond to a crash by tightening the rules, not by removing them. So II causing I does not work.
I is the main cause and II is the main effect, which is option (A).
Step 4: Why the other options fail:
(B) says I is an effect. But being unregulated is a state of affairs created by policy choices and gaps in the law, not something the crisis produced.
(C) reverses the chain and makes the crisis create the lack of regulation, which contradicts how governments actually behave after a crash.
(D) treats II as an effect but denies I as the main cause, which throws away the only explanation the pair offers.
Step 5: Final Answer:
The answer is option (A): I is the main cause and II is the main effect.
Event I says financial institutions are largely unregulated. Event II says the world is passing through a serious economic crisis. We must decide the direction of causation.
Step 2: Key Approach:
Ask which event describes a standing condition and which describes an outcome. A condition that has been in place for a while can cause an outcome; an outcome cannot reach back and create the condition.
Step 3: Detailed Explanation:
Regulation of financial institutions means rules on how much they may lend, how much capital they must hold against losses, and what risks they may take. These rules exist to keep banks and lenders from gambling with other people's money.
If that oversight is weak, lenders chase high returns, take on risk they cannot absorb, and build up bad loans. When those bets fail, the losses spread from one institution to another through the credit chain, credit dries up, businesses cannot borrow, and the wider economy stalls. That is what an economic crisis looks like. So light regulation is a standing condition that can produce a crisis. I causes II.
Test the reverse. Could an economic crisis make financial institutions unregulated? A crisis usually does the opposite. Governments respond to a crash by tightening the rules, not by removing them. So II causing I does not work.
I is the main cause and II is the main effect, which is option (A).
Step 4: Why the other options fail:
(B) says I is an effect. But being unregulated is a state of affairs created by policy choices and gaps in the law, not something the crisis produced.
(C) reverses the chain and makes the crisis create the lack of regulation, which contradicts how governments actually behave after a crash.
(D) treats II as an effect but denies I as the main cause, which throws away the only explanation the pair offers.
Step 5: Final Answer:
The answer is option (A): I is the main cause and II is the main effect.
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