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22 January, 14:44

Assume there are only three possible states of nature for the economy in the future: boom, normal, and recession. If there is a 25% chance of a recession and a 30% chance of a boom, then what is the probability of a normal economy in the future? a. 45%b. 30%c. 25%d. 100%

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  1. 22 January, 15:50
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    a. 45%

    Explanation:

    The sum of total probabilities is always equal to 1. Since in the given question only three probabilities are given, so the sum of these three probabilities shall be 1 which is represented as follows by the equation:

    probability of boom+probability of normal+probability of recession=1

    In the given question:

    probability of boom=30%

    probability of recession=25%

    30%+probability of normal+25%=1

    Probability of normal=1-25%-30%=45%

    So based on the above calculations, the answer shall be a. 45%
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