Only two answers seem to come close, but let's get a hold of the situation. We have a situation that arises as a child's imagination becomes developed. That situation brings negative effects, but it may also bring counter-acting effects as well.
Once a child’s imagination becomes developed, a host of imaginary creatures may torment the child. But this newly developed cognitive capacity may also be used to render these creatures harmless. For instance, a child’s new toy may be imagined as an ally, powerful enough to ward off any imaginary threats.
The type of situation described above most closely conforms to which one of the following propositions?
(A) Some newly developed capacities only give rise to problems.
Nope. The passage even speaks about allies.
(B) Sometimes the cause of a problem may also provide its solution.
Yes. The passage basically says that the situation causes A but can also cause B. And that A and B can cancel each other out.
(C) Children are not able to distinguish between real and imaginary threats.
Not mentioned. Extreme language, too, I daresay. This one was close, though. I didn't immediately throw it out of consideration.
(D) The most effective way for children to address their fears is to acknowledge them.
Not mentioned. Irrelevant.
(E) Most problems associated with child-rearing can be solved with a little imagination.
Not mentioned. Irrelevant.
The English used in the question is a little difficult to grasp; the following may be useful if you ever encounter the word PROPOSITION later on (it has more than one meaning). The meaning used here is this one, I feel:
a statement or assertion that expresses a judgement or opinion.
"the proposition that high taxation is undesirable"