Compile adds blank lines between paragraphs and ignores indents

To comply with the Amazon guidelines for self-published paperbacks, I am printing in a standard paperback page size but outputting to pdf.

Compile -> Formatting appears as in the attachment. Each paragraph start is indented correctly. However, the output is not indented. Also, Compile adds blank lines between the paragraphs that aren’t in the pre-Compile original.

My Formatting menu choices are in this screenshot.

Any help with either issue would be appreciated.