Question: Despite government bailouts and stimulus money, unemployment in the U.S. had not decreased significantly as economists had expected (US News and World Report, July 2, 2010). Many analysts predicted only an 18% chance of a reduction in unemployment. However, if Europe slipped back into a recession, the probability of a reduction in U.S. unemployment would drop to 0.06.
a. What is the probability that there is not a reduction in unemployment?
b. Assume there is an 8% chance that Europe slips back into a recession. What is the probability that there is not a reduction in U.S. unemployment and that Europe slips into a recession?