1. An open market ________ leads to a(n) ________ of reserves and deposits in the banking system and hence to a(n) ________ of the monetary base and the money supply. (5 points)
   1. sale; expansion; contraction
   2. purchase; expansion; contraction
   3. sale; expansion; expansion
   4. purchase; expansion; expansion
   5. None of the above.

2. A discount loan by the Fed to a bank causes a(n) ________ in reserves in the banking system and a(n) ________ in the monetary base. (5 points)
   1. increase; decrease
   2. decrease; decrease
   3. decrease; increase
   4. increase; increase
   5. None of the above.