What is the probability of "recession and an increase in interest rates?"
P(RI) = P(R given I) * P(I) = .7 * .4 = .28
h: Calculate,using the addition rule, the probability that at least one of two events will occur.
The general rule of addition states that if two events A and B are notmutually exclusivethen you must account for the joint probability of events. That is the possibility that the two events will occur at exactly the same time. Joint probability is shown by the overlap of the occurrence circles in the traditional Venn diagram shown below.
P (A or B) = P (A) + P(B) – P(A and B),where P(A and B) is the joint probability of A and B.
The joint probability [P(A and B)]is defined as the probability that measures the likelihood that 2 or more events will happen concurrently.
P(A and B) = P(A)*P(B) for independent events, or
P(A and B) = P(A)*P(B given that A occurs) for conditional events.
i: Distinguish between dependent and independent events.