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1. While at the park, Tasha saw a small child fall into the lake. Tasha did not know the child.
Under the common law of most states, Tasha has a legal duty to take reasonable steps to
assist the child if Tasha is able to help and such help will not jeopardize Tasha's well being.
Answer: False
2. The largest source of new law is court decisions.
Answer: False
3. By creating three independent and equal branches of the federal government, the U.S.
Constitution limited the federal government’s power.
Answer: True
4. Even if a statute’s words have ordinary, everyday significance, the court will look at the
legislative history of the law and public policy in order to interpret the statute.
Answer: False
5. Misleading commercial speech may be outlawed altogether without violating the
Answer: True
6. If the President vetoes a bill and if both the House and Senate repass the bill by a twothirds margin, the bill becomes law.
Answer: True
7. The Federal Trade Commission promulgated Telemarketing Sales Rules regulating the
activities of telemarketers. One of the rules prohibits telemarketers from calling a person's
residence at any time other than between 8:00 a.m. and 9:00 p.m. This legislative rule has the
effect of a statute.
Answer: True

8. The Occupational Safety and Health Administration (OSHA) has proposed rules aimed at
reducing repetitive-stress injuries. ATC, Inc. disagrees with the proposed rules. ATC, Inc.
should challenge the proposed rules in court to prevent them from becoming final rules.
Answer: False
9. The power to create laws regulating international commerce is given to Congress and the
states concurrently under the U.S Constitution.
Answer: False
10. From tax returns, the Internal Revenue Service (IRS) has information concerning
Elizabeth Jones. Generally, the IRS may not divulge this information to the Federal Bureau of
Investigation unless Elizabeth has given written consent.
Answer: True
11. Administrative agencies exist at the federal, state, and local levels.
Answer: True
12. Because of the concept of stare decisis, the U. S. Supreme Court, in interpreting a statute
in 2009, will necessarily interpret certain statutory language in the same way as the U. S.
Supreme Court interpreted the same statutory language in 1971.
Answer: False
13. The President has the power to remove the chairperson of the Consumer Product Safety
Commission, an independent federal administrative agency, if the President disagrees with
the chairperson's actions.
Answer: False
14. Actual hearings are required in formal administrative agency rulemaking.
Answer: True
15. The Framers of our Constitution, a true cross section of the population at the time, created
the Constitution by amending the Articles of Confederation, which had been the governing
document of the colonists.
Answer: False

1. The primary source of federal power to regulate business is the:
a. Supremacy Clause.
b. Commerce Clause.
c. Contract Clause.
d. Privilege and Immunities Clause.
Answer: B
2. The concept of stare decisis focuses most on:
a. predictability.
b. flexibility.
c. legislative intent.
d. change.
Answer: A
3. The U.S. Supreme Court was asked to decide whether same-sex sexual harassment is a
violation of Title VII of the Civil Rights Act. This law forbids discrimination in employment
on the basis of sex. In interpreting statutes, the court may use which of the following?
a. The plain meaning rule.
b. Legislative history.
c. Public policy.
d. All of the above.
Answer: D
4. The power of federal agencies is limited by:
a. statutory control in the enabling legislation and the Administrative Procedures Act.
b. political control by Congress and the President.
c. judicial review.

d. All of the above.
Answer: D
5. Psychologist Holtz is working with a patient, Rebecca, who has expressed the intention to
seriously harm two of her acquaintances. If you apply the principle set forth by the Supreme
Court of California in the Tarasoff v. Regents of the University of California case,
Psychologist Holtz:
a. has, because of the bystander rule, no duty to warn the foreseeable victims about Rebecca’s
expressed intention to harm them.
b. has a duty to exercise reasonable care to protect foreseeable victims of Rebecca’s violence.
c. is in a special relationship with patients, and this relationship creates a privilege of
confidentiality between the communicants.
d. will be held to a strict duty of care and will be held liable for any victim’s injuries if Holtz
failed to warn a them of Rebecca’s potential violence toward them.
Answer: B
6. Assume that in December 2006, the Environmental Protection Agency (EPA) filed an
administrative complaint against Marlin Firearms Co. alleging that the company exceeded
chromium emissions limits. The EPA proposed a $257,162 fine. Which statement is correct
concerning the administrative agency adjudication?
a. A jury decides the matter.
b. The Federal Rules of Criminal Procedure govern the admissibility of evidence.
c. The losing party has a right to appeal.
d. The parties are not represented by attorneys.
Answer: C
7. If in 1900 the Minnesota Supreme Court ruled that a minor can void a contract at any time
during minority and in 2008 the courts in Minnesota still follow this ruling, this is an example
a. stare decisis.

b. the bystander rule.
c. statutory law.
d. enabling legislation.
Answer: A
8. The last protected trait added by Congressman Smith of Virginia to the bill which became
Title VII of the Civil Rights Act of 1964 was:
a. sex (gender).
b. sexual orientation.
c. national origin.
d. race.
Answer: A
9. What is the major distinction between executive and independent agencies?
a. Executive agencies govern business issues while independent agencies regulate individual
b. The President has greater control over executive agencies.
c. The Administrative Procedure Act regulates independent agencies but not executive
d. Subpoenas may be issued by independent agencies; executive agencies do not have
subpoena power.
Answer: B
10. The Administrative Procedure Act:
a. applies to all federal agencies.
b. applies to executive branch agencies but not to independent agencies.
c. applies to independent agencies but not to executive branch agencies.
d. does not apply to federal agencies.

Answer: A
11. Administrative agency rules consist of:
a. executive and independent rules.
b. legislative and interpretive rules.
c. informal and "notice and comment" rules.
d. promulgated and unpromulgated rules.
Answer: B
12. The Bill of Rights refers to:
a. the inalienable rights found at the beginning of the Constitution.
b. the first ten amendments to the Constitution.
c. a specific listing of individual rights found in the original text of the Constitution.
d. a grouping of individual rights set forth by the United States Supreme Court shortly after
the Constitution was ratified by the states.
Answer: B
13. The U.S. Supreme Court’s holding in Ward’s Cove Packing v. Atonio:
a. differed from the holding in Griggs v. Duke Power Co. partly because the Court was more
conservative at the time Ward’s Cove was decided.
b. upheld the ruling in Griggs v. Duke Power Co.
c. found that overt racial discrimination existed.
d. set forth a “business necessity” requirement for employment hiring practices.
Answer: A
14. Congresswoman Sloan introduced a bill in the House of Representatives. If the bill is
approved by the House committee specializing in that subject, the bill will go to:
a. a Senate committee specializing in the subject matter of the proposed legislation.
b. the full House.

c. a Conference Committee made up of representatives of both the House and Senate.
d. the voters of her state for approval.
Answer: B
15. The “dormant” aspect of the Commerce Clause:
a. is also known as the “negative” aspect.
b. means that there are many unused powers still available to the government to regulate trade
between the states.
c. guarantees that Congress has the power to regulate trade with foreign countries that have
not yet developed trade practices with the United States.
d. guarantees that the states have the power, even if unused, to impose regulations affecting
interstate commerce.
Answer: A
16. Bert had his driver's license suspended by the state department of transportation. He
believes his constitutional due process rights were violated by the administrative agency. Can
he immediately file a court action to have agency's actions reviewed?
a. Yes. A court has the jurisdiction to immediately review an agency's alleged unconstitutional
b. Yes. Bert must specifically allege his constitutional rights have been violated and file a
court action in federal court - not a state court.
c. No. Bert must first utilize the administrative agency's procedures to review the suspension
before he seeks judicial review by a court.
d. No. A court of law does not have jurisdiction to review an administrative agency's actions.
Answer: C
17. TECO Coal Corporation mines and ships more than six million tons of coal annually.
TECO is comprehensively regulated by the U.S. Bureau of Mines. The U.S. Bureau of Mines
may conduct a surprise inspection of one of TECO's mines:
a. only if it has a search warrant.

b. only if it has a subpoena.
c. only if it has reason to believe a violation of a regulation has occurred.
d. without a search warrant to ensure safety.
Answer: D
18. SharCo and Blyron Productions are each applying for a television license. In deciding
which applicant is better qualified, the FCC will hold an initial hearing before:
a. the OSHA.
b. an administrative law judge.
c. an administrative mediator.
d. a House-Senate Conference Committee.
Answer: B
19. Which statement is correct concerning judicial review of an administrative agency's
a. Courts usually accept the facts of the case as determined by the agency and often defer to
the agency's interpretation of the law.
b. Courts conduct a de novo review of the case.
c. Courts ignore the facts of the case.
d. Courts substitute their opinion for that of the agency.
Answer: A
20. West Virginia passed a statute regulating working conditions in its mines. If the statute is
challenged in court on substantive due process grounds:
a. it would be presumed invalid and would be struck down since it involves a fundamental
right to work.
b. it would be presumed invalid but would be struck down only if it is not necessary to
achieve a compelling government interest.
c. it would be presumed valid since it regulates economic or social conditions.

d. it carries no presumptions, but must be evaluated based on the procedures involved.
Answer: C
21. Tina wishes to learn what records the IRS has about her. Under the Freedom of
Information Act (FOIA),
a. Tina can only obtain copies of declassified information.
b. Tina is entitled to all information the IRS has about her.
c. Tina can only obtain information about the IRS, not records concerning herself.
d. Tina cannot obtain any information since the IRS is exempt from the FOIA.
Answer: B
22. Generally, constitutional protections do NOT apply to:
a. acts of the federal government.
b. acts of state government.
c. acts of administrative agencies.
d. acts of privately owned businesses.
Answer: D
23. The purpose of the Freedom of Information Act (FOIA) is:
a. to give the government access to information concerning citizens, businesses, and
b. to limit the amount of information that the government can collect about its citizens,
businesses, and organizations.
c. to permit warrantless searches and seizures of evidence when necessary to ensure safety.
d. to give citizens, businesses, and organizations access to information that federal agencies
are using.
Answer: D
24. The Consumer Product Safety Commission (CPSC) is an independent federal
administrative agency. Which statement is correct about the chairperson?

a. The chairperson serves at the whim of the President and can be fired at any time.
b. The chairperson can only be fired by the President for good cause.
c. The chairperson cannot be fired by the President since the CPSC is an independent agency.
d. The chairperson has a lifetime appointment and cannot be fired.
Answer: C
25. If there is a conflict between a state and federal law, generally the federal law will prevail
because of the:
a. federalism doctrine.
b. Supremacy Clause.
c. paramount doctrine.
d. Interstate Commerce Clause.
Answer: B
1. Discuss the four most important limitations on the power of federal administrative
Answer: The four most important limitations on the power of federal administrative agencies
are: statutory control; political control; judicial review; and informational control. Statutory
control exists through enabling legislation, which may limit an agency to the use of formal
rulemaking or may limit the issues the agency may investigate. The APA also imposes
controls. Political control may be exercised by the President or Congress. Control by the
President is greatest with executive agencies. Congress controls through funding and through
the power to approve presidential nominees to head agencies. Businesses or individuals
directly harmed by administrative rules, investigations, or adjudications generally have a
right to have such action reviewed in federal court after taking all possible appeals within the
agency itself. Informational control has been created by the Freedom of Information Act and
the Privacy Act.
2. Define the common law. Discuss its conflicting goals and the doctrine created to serve one
of these goals.

Answer: The common law is judge-made law. It is the total of all the cases decided by
appellate courts. Although most new law is statutory, common law predominates in tort,
contract, and agency law, and it is very important in property and employment law. The
common law attempts to accommodate the conflicting goals of predictability and flexibility.
The need for predictability created the doctrine of stare decisis, which means “let the decision
stand.” Stare decisis indicates that once a court has decided a particular issue, it will generally
apply the same rule in future cases. The law must also be somewhat flexible in order to
respond to new problems and changing social mores.
3. Big Corporation is served with a subpoena to turn over business records to an
administrative agency. What are three possible legal grounds the company can raise to avoid
producing the requested records?
Answer: The company can argue that the requested records (1) are irrelevant to the
investigation, (2) will be unreasonably burdensome to produce, or (3) contain privileged
4. ATC, Inc. offered health insurance benefits to unmarried same-sex domestic partners but
not to unmarried, cohabiting heterosexual couples. Ray, an employee of ATC, Inc.,
challenged the benefit plan, claiming that it was in violation of Title VII of the Civil Rights
Act. Under the Civil Rights Act, an employer may not discriminate against any individual on
the basis of sex. Discuss the tools that a court may use in interpreting the Civil Rights Act.
Answer: There are three primary tools that a court may use in interpreting a statute: plain
meaning rule; legislative history and intent; and public policy. According to the plain
meaning rule, when a statute’s words have ordinary, everyday significance, the court will
simply apply the commonsense definition. If the language is unclear, the court must look at
the law’s history to determine the intent of the legislature. If the legislative history is unclear,
courts will rely on general public policies.
5. Identify the basic job of a President of the United States, the source of executive power,
and three key powers associated with the position of President.
Answer: The basic job of a President is to enforce the nation’s laws. Article II of the
Constitution created the office of President and defines the executive power. Three key
powers of a President concern appointment, legislation, and foreign policy. The President
nominates the heads of most administrative agencies, and such agencies play a powerful role

in business regulation and other facets of national life. As far as legislative power, a President
and his advisers propose bills to Congress. A President also has veto power over bills and can
issue executive orders. The President conducts the nation’s foreign affairs, coordinates
international efforts, and negotiates treaties. He is commander in chief of the armed forces,
but does not have the right to declare war.

Test Bank For Introduction to Business Law
Jeffrey F. Beatty, Susan S. Samuelson

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