7.4 Cause & Effect Analysis

Cause & Effect Analysis

In the Reasoning Ability section of SBI PO (Prelims and Mains), Cause & Effect questions test your analytical capability to evaluate real-world events, economic shifts, administrative policies, and social phenomena. You are presented with two statements (Statement I and Statement II) and must determine the logical relationship between them.

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1. The 5 Standard Options in SBI PO

For every Cause & Effect question, SBI PO provides the following five standard options:

1. Statement I is the cause and Statement II is its effect.
2. Statement II is the cause and Statement I is its effect.
3. Both statements are independent causes.
4. Both statements are effects of independent causes.
5. Both statements are effects of a common cause.

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2. Analytical Mechanics of Causation

To establish that Event A is the Cause and Event B is the Effect, two conditions must be met simultaneously:

1. Chronological / Logical Precedence: Event A must happen prior to or simultaneously with Event B.
2. Direct Explanatory Link: Event A must provide the natural, logical mechanism that produces Event B.

$\text{Cause (Trigger Event)} \xrightarrow[\text{Direct Mechanism}]{\mathbf{Therefore}} \text{Effect (Resulting Outcome)}$

The "Why - Therefore" Connector Test

• Testing I $\to$ II: Read Statement I, insert "Therefore / As a result", then read Statement II.
  • Does it make logical sense? If yes, I is the cause and II is the effect.
• Testing II $\to$ I: Read Statement II, insert "Because / Due to", then read Statement I.
  • Does it explain why Statement I happened? If yes, II is the cause and I is the effect.

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3. Dissecting the 5 Relationship Types

                             [ Given Statements I & II ]
                                         |
                   Is there a direct causal connection between them?
                     /                                       \
                  YES                                         NO
                   |                                           |
        Which direction flows?                       Are they Causes or Effects?
       /                      \                     /                           \
  (I causes II)          (II causes I)     (Effects of Common Cause)   (Independent Causes / Effects)

Type 1: Direct Cause and Effect (I $\to$ II or II $\to$ I)

One statement directly produces the second statement.

• Statement I: "The Reserve Bank of India reduced the Cash Reserve Ratio (CRR) by 100 basis points."
• Statement II: "Commercial banks in India experienced a significant increase in loanable funds to lend to retail borrowers."
• Analysis: Reducing CRR frees up bank liquidity, directly increasing loanable funds. (Statement I is the cause and Statement II is its effect).

Type 2: Effects of a Common Cause

Both statements describe separate outcomes resulting from a single, overarching unmentioned event.

• Statement I: "Prices of fresh vegetables in the metropolitan city surged by 60% this week."
• Statement II: "Suburban commuter train services were disrupted due to waterlogging across railway tracks."
• Analysis: What connects vegetable price hikes (supply disruption) and flooded train tracks? Torrential urban rainfall / flooding. Both are separate consequences of a single underlying cause. (Both statements are effects of a common cause).

Type 3: Effects of Independent Causes

Both statements are outcomes/effects, but they stem from completely unrelated factors.

• Statement I: "Major airline operators increased domestic airfares by 15%."
• Statement II: "Government steel manufacturing plants reported a 20% drop in annual steel output."
• Analysis: Airline fare hikes (driven by aviation fuel prices) and steel output drops (driven by iron ore shortages or labor strikes) are both effects, but they operate in completely unlinked sectors. (Both statements are effects of independent causes).

Type 4: Independent Causes

Both statements are primary trigger events (causes) that create unrelated consequences elsewhere.

• Statement I: "The central government reduced import duties on crude palm oil."
• Statement II: "The municipal corporation mandated segregation of wet and dry household waste."
• Analysis: Both statements describe primary policy actions (causes) taken by different authorities in unrelated domains. (Both statements are independent causes).

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4. Decision Table: Cause & Effect Diagnostic Guide

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5. Step-by-Step Worked Example

Statement I:

"The prices of gold and silver reached historic high levels in the domestic Indian market during the last quarter."

Statement II:

"Global geopolitical tensions and economic uncertainty prompted international investors to move capital out of equities into safe-haven assets."

Step-by-Step Analysis:

1. Identify the nature of each statement:
   • Statement II describes a major macroeconomic event: global geopolitical tension driving capital into safe-haven assets (gold/silver).
   • Statement I describes a specific market outcome: domestic gold and silver prices reaching historic highs.
2. Apply the 'Therefore' test (II $\to$ I):
   • "Global geopolitical tensions prompted investors to move capital into safe-haven assets like gold... THEREFORE, the prices of gold and silver reached historic highs in the domestic market."
3. Flow Check: The flow makes total logical sense. Capital inflow into gold drives prices up. Thus, Statement II is the root cause, and Statement I is the direct effect.

Conclusion: Statement II is the cause and Statement I is its effect.