You must show all work including important formulas, graphs, tables, calculations etc. used in solving the problem to receive full credit. 1. Compare and contrast: direct finance vs indirect finance. 2. What are the four main functions of money? Describe each function. 3. Explain what will happen to the equilibrium price of bonds and interest rate when the government runs a large deficit, holding everything else constant. Use a demand and supply graph for bonds to illustrate situations. Be sure that your graph shows any shifts in the demand or supply curves, the original equilibrium price and quantity, and the new equilibrium price and quantity. Also, be sure to explain what is happening in your graphs. (If it is uncertain in which direction either the equilibrium price or equilibrium quantity will change, explain why). 4. How does the liquidity premium theory explain an upward-sloping yield curve during normal economic times?