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Q1. OT Sacrifices as God's Grace

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How were Old Testament sacrifices a way of God showing grace and mercy to his people?

The short answer is the wages of sin is death. A life for a life. The blood of bulls and goats were substitute and stay (postponing) that provided forgiveness and justification for the offenses. 

God is sovereign and Creator of everything seen and unseen and this is a part of His economy. He not only governs by the wisest of laws, but assigns a reason, in one place or other, for almost every precept. Beyond what has been mentioned, I do not pretend to understand anymore, but accept His ways. The law was a tutor teaching us what we did not understand and could not comprehend about holiness and sin. "It prepared those belonging to it for the future reception of Christian salvation (justification by faith) in such a manner that, by virtue of the principle of sin which it excited, it continually brought about and promoted transgressions (Galatians 3:19; Romans 7:5 ff.), thereby held the people in moral bondage (Galatians 3:23), and by producing at the same time the acknowledgment of sin (Romans 3:20) powerfully brought home to the heart (Romans 7:24) the sense of guilt and of the need of redemption from the divine wrath (Romans 4:15)."

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