Despite government bailouts and stimulus money, unemployment in the U.S. had not decreased significantly as economists had expected (US N e w s a n d W o rld R eport, 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? P-258