Question:

An analyst states that the probability that the economy will continue to expand in the coming year is 25%. Further, she anticipates that the probability of the Fed increasing interest rates is 50%. The joint probability that the economy will continue to expand and the Fed will increase interest rates is 35%. Given this information, the probability that the Fed will increase interest rates or that the economy will continue to expand is closest to:

A 40%.

explanation

P(A or B) = P(A) + P(B) – P(AB)
P(Fed will raise interest rates OR economy will expand) = 0.50 + 0.25 − 0.35 = 0.40