Question 2:

A reduction in the domestic source component of the stock of high-powered money under fixed exchange rates

1. leads to an increase in the stock of foreign exchange reserves and the nominal money supply.

2. leads to a decline in the stock of foreign exchange reserves.

3. leads to an increase in the stock of foreign exchange reserves.

4. leads to an increase in the stock of foreign exchange reserves and decline in the stock of base money.

Choose the correct option.