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Chapter 2: A Historical Perspective on
Business Ethics
Test Bank
Multiple Choice
1. ______________ were granted by the British government to allow several people to create
organizations by pooling financial resources, which enabled riskier business projects to be
undertaken.
a) pacts
b) charters
c) constitutions
d) doctrines
e) none of the above
Ans: b
Response: See page 42
Level: Easy
2. Settlements in Roanoke, Jamestown and Plymouth were early examples of ________________.
a) business ventures
b) participant democracies
c) uplifting indigineous populations
d) all of the above
e) none of the above
Ans: a
Response: See page 41
Level: Medium
3. The ________________, chartered by King James, searched for gold and gems and led trading in
furs and spices in the Roanoke Islands.
a) Columbus excursions
b) Jamestown settlements
c) Virginia Company of London
d) American Charters
e) none of the above
Ans: c
Response: See page 42
Level: Medium
4. _____________________ were laborers who served their masters for several years in exchange
for transportation, food, clothing, lodging, and eventual freedom.
a) slaves
b) settlers
c) indentured servants
d) Pilgrims
e) none of the above
Ans: c
Response: See page 43
Level: Easy
5. Among the reasons Pilgrims settled in Massachusetts were desires for:
a) religious freedoms
b) economic opportunities
c) new trade routes
d) all of the above
e) none of the above
Ans: d
Response: See pages 42-43
Level: Medium
6. The ________________ in 1773 was a major colonial incident resulting from the East India
Company’s monopolistic business practices.
a) Boston Tea Party
b) Plymouth settlement
c) Revolutionary war
d) all of the above
e) none of the above
Ans: a
Response: See page 44
Level: Medium
7. The Boston Tea Party was a response to which of the following British policies?
a) monopolistic business practices
b) attempts to limit religious freedoms
c) attempts to limit the rights of indigenous people
d) all of the above
e) none of the above
Ans: a
Response: See page 44
Level: Medium
8. Which of the following early leaders was not among the authors of the Declaration of
Independence?
a) Thomas Jefferson
b) James Madison
c) Benjamin Franklin
d) all of the above
e) none of the above
Ans: e
Response: See page 44
Level: Easy
9. Which of the following rights were not included in the Bill of Rights?
a) right to bear arms
b) freedom of the press
c) freedom from unreasonable search and seizure
d) freedom to rule the colonies
e) freedom of religion
Ans: d
Response: See page 44
Level: Easy
10. The fundamental belief on which the Declaration of Independence was founded, grounded in
philosophical notions of basic human rights, was ________________.
a) the right to bear arms
b) the right to own property
c) government should be based on the consent of the governed
d) government should pursue happiness
e) none of the above
Ans: c
Response: See page 44
Level: Medium
11. _____________, a Scottish philosopher, provided many of the teachings that underlie capitalist
systems.
a) James Madison
b) Adam Smith
c) John Locke
d) King George III
e) none of the above
Ans: b
Response: See page 45
Level: Medium
12. Fundamental notions behind Adam Smith’s concept of a fair economic system include which of
the following?
a) reason and liberty
b) freedom and religious control
c) selfishness and justice
d) all of the above
e) none of the above
Ans: a
Response: See page 45
Level: Medium
13. Adam Smith argued that “wealth of nations” resulted from which of the following?
a) freedom and competition
b) economic self-interest
c) capitalist economic systems
d) all of the above
e) none of the above
Ans: d
Response: See page 45
Level: Medium
14. According to its definition, capitalism as an economic system is characterized by which of the
following?
a) mercantilist policies
b) democratic policies
c) freedom and competition
d) religious freedom
e) selfishness at all costs
Ans: c
Response: See page 45
Level: Medium
15. Which of the following were not among the benefits early capitalists associated with a free and
competitive market economy?
a) more goods and services
b) lower prices
c) better-quality products
d) greater labor flexibility
e) higher tax revenues
Ans: e
Response: See page 45
Level: Easy
16. Adam Smith argued that when self-regulating moral mechanisms fail, ________________ must
serve to protect the public from egregious immoral actions.
a) democracy
b) strong justice systems
c) individual sanctions
d) all of the above
e) none of the above
Ans: b
Response: See page 46
Level: Medium
17. Prior to capitalism, key management positions were often filled based on which of the following?
a) family connections
b) political connections
c) wealth
d) all of the above
e) none of the above
Ans: d
Response: See page 45
Level: Easy
18. Government intervention in the marketplace, Smith reasoned, is needed under only which of the
following conditions:
a) when contracts are violated
b) when merchants abuse their freedom by committing injustices against others
c) when the pursuit of self-interest does not generate highly desired social welfare benefits
d) all of the above
e) none of the above
Ans: d
Response: See page 46
Level: Medium
19. Smith cautioned that owners who do not rely on moral sentiments when dealing with laborers
could result in which of the following problems:
a) an overabundance of labor, which could drive wages below subsistence levels
b) excessive application of piece-rate incentives, which could increase productivity in the short term
but damage the worker’s health in the long run
c) excessive application of division of labor, which could increase productivity in the short term but
damage the worker’s intellectual abilities in the long term
d) all of the above
e) none of the above
Ans: d
Response: See page 47
Level: Difficult
20. The period in the early 1800s marked by significant economic growth in the United States was
called:
a) the Revolutionary War
b) the Industrial Revolution
c) the Declaration of Independence
d) the birth of capitalism.
e) none of the above
Ans: b
Response: See pages 47-48
Level: Easy
21. The Industrial Revolution was characterized by which of the following?
a) religious freedom
b) development of ammunitions
c) technological innovation
d) all of the above
e) none of the above
Ans: c
Response: See page 48
Level: Easy
22. The Sherman Antitrust Act of 1890 outlawed which of the following?
a) monopolies
b) mercantiles
c) charters
d) all of the above
e) none of the above
Ans: a
Response: See page 49
Level: Medium
23. In the late 1880s, states began to compete against one another in which of the following ways?
a) relaxing religious freedoms
b) introducing the right to bear arms
c) simplifying rules for obtaining corporate charters and eliminating tax restrictions
d) monopolizing business operations
e) none of the above
Ans: c
Response: See page 49
Level: Medium
24. First developed in the late 1880s in response to increasing corporate complexity and growth, the
concept of __________________ refers to laws protecting individual shareholders from financial
liability if businesses are sued or fail.
a) antitrust legislation
b) limited liability
c) antitrust acts
d) all of the above
e) none of the above
Ans: b
Response: See page 49
Level: Medium
25. _________________ is a system in which some individuals are perceived as property, and
thereby capable of being owned by other people and subject to the whims of their owners, with no
provisions for eventual freedom.
a) slavery
b) indentured servitude
c) low-wage workers
d) all of the above
e) none of the above
Ans: a
Response: See page 49
Level: Easy
26. The U.S. Constitution was written without addressing the issue of slavery to:
a) recognize that slaves were fundamental to the growth of the new nation
b) appease southern states whose economies depended on slaves
c) protect the rights of paid workers
d) all of the above
e) none of the above
Ans: b
Response: See pages 49-50
Level: Medium
27. Dependency on slave labor ________________ during the Industrial Revolution.
a) increased
b) decreased
c) stayed the same
d) was outlawed
e) was eliminated
Ans: a
Response: See page 50
Level: Medium
28. A(n) _________________ is an association of employees that advances its members interests,
including wages, benefits, work rules and other conditions of employment, through collective
bargaining with an employer.
a) oligopoly
b) strike
c) labor union
d) all of the above
e) none of the above
Ans: c
Response: See page 50
Level: Easy
29. Philosophers including ___________________ and Friedrich Engels disputed Adam Smith’s
assumptions about the moral sentiments of business people, and inspired some union organizers.
a) Karl Marx
b) Samuel Gompers
c) Milton Friedman
d) all of the above
e) none of the above
Ans: a
Response: See page 50
Level: Medium
30. The establishment of __________________ was an early victory for labor unions, resulting from
strikes across the nation in 1886.
a) fair wages
b) the eight-hour work day
c) equal pay for all workers
d) all of the above
e) none of the above
Ans: b
Response: See page 51
Level: Medium
31. The 1935 passage of which law legally obligated employers to negotiate with duly elected unions
and codified regulations governing the process for forming a union?
a) the National Labor Relations Act (NLRA)
b) the Sherman Antitrust Act (SAA)
c) the Taft Hartley Act (TFA)
d) the National Strike Act (NSA)
e) none of the above
Ans: a
Response: See page 51
Level: Medium
32. U.S.-born _______________ unionized immigrant farm workers in California and led a 10-year
nationwide boycott against grapes picked by nonunion workers.
a) Che Guevera
b) Cesar Chavez
c) Samuel Gompers
d) Taft Hartley
e) none of the above
Ans: b
Response: See page 51-52
Level: Medium
33. _________________’s emphasis on liberty has increased national wealth more than any other
economic system.
a) socialism
b) communism
c) capitalism
d) feudalism
e) none of the above
Ans: c
Response: See page 53
Level: Easy
34. Education is ______________ correlated with wealth, with a slight decline occurring at the
doctoral level.
a) positively
b) negatively
c) equally
d) inversely
e) none of the above
Ans: a
Response: See page 54
Level: Easy
35. The minimum wage, the lowest wage an employee can legally pay an employee, an amount
higher than what the market would otherwise establish, was federally mandated by which of the
following pieces of legislation?
a) the Fair Labor Standards Act
b) the National Labor Relations Act
c) the Great Depression Act
d) the Living Wage Act
e) none of the above
Ans: a
Response: See page 54
Level: Medium
36. In 2009, the federal government tried to determine “fair compensation” for top executives that
accepted federal bailout funds by:
a) limiting the total amount of compensation
b) regulating stock options
c) mandating lump sum payments
d) requiring cash bonuses
e) none of the above
Ans: e
Response: See page 57
Level: Medium
37. One method that may assist in more equitable levels of executive pay that limits incentives for
stock price manipulation is:
a) extended payout periods for stock options
b) lump-sum stock option payouts
c) elimination of stock options
d) all of the above
e) none of the above
Ans: a
Response: See page 57
Level: Medium
38. The Reagan Administration of the 1980s began a process of deregulation, or
__________________, which continued under the Clinton and Bush administrations.
a) lifting government restrictions on market activity
b) tightening government restrictions on market activity
c) ensuring equitable stock options
d) ensuring consumer protections
e) none of the above
Ans: a
Response: See page 57
Level: Medium
39. The Federal Sentencing Guidelines, issued in 1991, were an attempt by the government to:
a) mandate policies and procedures that reinforce ethical behavior
b) require widespread consumer protections
c) require widespread worker protections
d) encourage managers to implement policies and procedures that reinforce ethical behavior
e) none of the above
Ans: d
Response: See page 58
Level: Medium
40. A B Corporation is distinct from the typical C Corporation designation because the B
Corporation certification focuses on:
a) maximizing shareholder wealth
b) limiting worker compensation
c) ethics, sustainability and social responsibility
d) all of the above
e) none of the above
Ans: c
Response: See page 60
Level: Medium
41. Which of the following best practices are consistent with the Optimal Ethics Systems Model:
a) hiring ethical people
b) codes of ethics and codes of conduct
c) environmental management
d) all of the above
e) none of the above
Ans: d
Response: see pages 62-63
True/False
42. It is important to consider the historical perspective to appreciate the evolution of the current
economic and regulatory systems.
Ans: True
Response: See page 40
Level: Easy
43. Capitalism was chosen as the economic system for the newly formed United States because it
was the easiest way to become competitive with Britain.
Ans: False
Response: See page 45
Level: Easy
44. Christopher Columbus’s voyage from Europe was motivated by a desire to discover resources in
other areas of the world.
Ans: True
Response: See page 41
Level: Easy
45. Many indigenous populations were harmed by early European exploration.
Ans: True
Response: See page 41-42
Level: Easy
46. Early charters hindered groups of people from creating organizations by pooling financial
resources, which enabled riskier business projects to be undertaken.
Ans: False
Response: See page 42
Level: Medium
47. Early settlements by English colonists were often marked by warfare with indigenous peoples.
Ans: True
Response: See page 42
Level: Easy
48. The Pilgrim settlement at modern-day Plymouth, Massachusetts, was a business venture
established as a trading colony.
Ans: True
Response: See page 42-43
Level: Easy
49. All groups at Plymouth were required to observe the Pilgrims’ strict religious lifestyle.
Ans: False
Response: See page 43
Level: Medium
50. Peaceful relations between indigenous tribes and the Pilgrims ended when the indigenous tribes
violated fur trading pacts and land agreements.
Ans: False
Response: See page 43
Level: Medium
51. On July 4, 1776, colonial leaders declared political independence from Britain, an act of treason
punishable by death.
Ans: True
Response: See page 44
Level: Medium
52. The Bill of Rights was the original introduction to the Declaration of Independence.
Ans: False
Response: See page 44
Level: Medium
53. The Bill of Rights outlined rights including freedom of speech, freedom of the press, and freedom
from unreasonable search and seizure.
Ans: True
Response: See page 44
Level: Easy
54. Victory in the Revolutionary War meant abandoning England’s government-controlled
mercantilist system in favor of commercial laws that encouraged and protected liberty in the business
sector.
Ans: True
Response: See page 45
Level: Medium
55. Adam Smith asserted that laborers must be tightly controlled to preserve economic growth.
Ans: False
Response: See page 45-46
Level: Medium
56. Mercantilist policies discouraged monopolies, avoided quotas on imports, and promoted freedom
for tradesmen.
Ans: False
Response: See page 45
Level: Medium
57. Adam Smith’s notions of selfishness and self-interest are identical.
Ans: False
Response: See page 46
Level: Medium
58. Capitalism was touted by Adam Smith and his followers as ethically superior to governmentcontrolled mercantilism due to its emphasis on individual freedom and competition.
Ans: True
Response: See page 45
Level: Medium
59. Adam Smith’s writings did not address the moral elements of capitalism.
Ans: False
Response: See page 45
Level: Medium
60. Adam Smith and early proponents of capitalism believed a strong system of justice is essential to
punish those who do not appropriately self-regulate their behaviors, and to reinforce contracts.
Ans: True
Response: See pages 45-46
Level: Medium
61. Adam Smith promoted self-interest as the primary motivation for individual behavior.
Ans: True
Response: See page 45
Level: Easy
62. Adam Smith argued that free people naturally disregard the interests of others.
Ans: False
Response: See page 45
Level: Medium
63. Smith argued that laborers benefit from capitalism because economic growth generates jobs and
more choice among occupations.
Ans: True
Response: See pages 46-47
Level: Medium
64. Living in an expanding economy hinders jobs and disposable income.
Ans: False
Response: See page 47
Level: Easy
65. Huge population growth through illegal immigration, primarily from Europe, characterized the
Industrial Revolution.
Ans: False
Response: See page 47
Level: Medium
67. U.S. capitalism, by definition, avoids ethical dilemmas arising from exploitation of laborers.
Ans: False
Response: See pages 49-55
Level: Medium
68. The founders of the United States addressed the obvious contradiction between slavery and
liberty in the Constitution.
Ans: False
Response: See pages 49-50
Level: Medium
69. The U.S. founders renounced slavery and refused to own slaves.
Ans: False
Response: See page 50
Level: Easy
70. Labor unions were originally intended to reduce power imbalances between owners and laborers.
Ans: True
Response: See page 50
Level: Easy
71. Though many union organizers have lived sacrificial lives for the well-being of others and
emphasized non-violence, some union activity has been hampered by the stigmas of violence and
corruption.
Ans: True
Response: See page 51
Level: Easy
72. Income inequality is unique to capitalist societies.
Ans: False
Response: See page 53
Level: Medium
Essay
73. Discuss the key components of Adam Smith’s conception of capitalism, including his
justification of the ethics of capitalism.
Ans: “Reason” and “liberty” are key. Mercantilist policies should be replaced by economic systems
based on freedom and competition. Individuals naturally pursue self-interest; government does not
need to mandate such pursuits. The benefits of a free and competitive market economy include more
goods and services, lower prices, better-quality products, less inefficiency, labor flexibility. Smith
distinguished between selfishness and self-interest and contended that self-regulating moral
mechanisms should be emphasized, though an independent justice system must protect against
egregious immoral actions. Freedom and liberty are essential values, people naturally respect the
interests of others, people morally self-regulate.
Response: See pages 45-46
Level: Medium
74. Identify and define at least four major issues surrounding labor rights in the U.S. capitalist
economy, from the founding of the United States through recent history including the 2009 federal
bailout.
Ans: May include slavery, strikes and the rise of labor unions, including relationship to Marxist
thought, 1933 National Labor Relations Act following the Great Depression, discussions of wages
and compensation including minimum wage and the concept of a living wage, executive
compensation and “fair compensation” attempts following the 2009 bailout.
Response: See pages 49-57
Level: Medium
75. Define and provide an overview of the Optimal Ethics Systems Model.
Ans: Synthesizes the various approaches of ethical behavior into a best practices framework for
reinforcing ethical behaviors and reducing ethical risks in organizations. Best practices may include
hiring ethical people, codes of ethics and codes of conduct, ethical decision-making frameworks,
ethics training, employee diversity, ethics reporting systems, ethical leadership, work goals and
appraisals, empowering ethical employees, environmental management and community outreach and
respect.
Response: See pages 62-63
Level: Medium
