1. A price elasticity of demand for Good X equal to -.85 implies

[A] if price increases by $1.00, quantity demanded will decrease by .85.

[B] if price decreases by $0.85, quantity demanded will increase by 1.

[C] a price of $1.00 will result in sales increase of .85 units.

[D] if price increases by 1%, quantity demanded will decrease by .85%.

[E] if price increases by 1%, demand will decrease by .85%.

2. We also assume in macroeconomics that total expenditure is equal to total output Y=C+I+G. Given the following data, derive a formula that relates Y as a product of r (hint your result should read Y= #-#r)

C = 0.5(Y –T) T = 2000 I = 3,000 – 250r G = 3,000            

b) What is the slope of the line?