Sample Chapter

 

INSTANT DOWNLOAD COMPLETE TEST BANK WITH ANSWERS

 

 

Test Bank for Business and Its Environment 7th Edition by Baron

 

SAMPLE QUESTIONS

 

Chapter Three:

The News Media and Nonmarket Issues

 

 

True/False Questions:

 

1)         The media has a responsibility to report the world as it sees fit.

Answer: False

Page reference: 52

Difficulty: Easy

AACSB:

Learning Outcomes: Describe communication skills and the factors affecting communication within an organization

 

2)         The societal significance perspective stresses on covering all stories with equal emphasis.

Answer: False

Page reference: 55

Difficulty: Easy

AACSB:

Learning Outcomes: Describe communication skills and the factors affecting communication within an organization

 

3)         Between two cases of man-made risks and natural risks, the societal significance perspective would emphasize on the man-made risk.

Answer: True

Page reference: 55

Difficulty: Easy

AACSB:

Learning Outcomes: Describe communication skills and the factors affecting communication within an organization

 

4)         The societal significance perspective would emphasize an issue having a human cause.

Answer: True

Page reference: 55

Difficulty: Easy

AACSB:

Learning Outcomes: Describe communication skills and the factors affecting communication within an organization

 

5)         The societal significance perspective places the news media in the role of a watchdog.

Answer: True

Page reference: 55

Difficulty: Easy

AACSB:

Learning Outcomes: Describe communication skills and the factors affecting communication within an organization

 

6)         According to the intrinsic audience interest, predicting which issues the media will cover requires determining which issues are of societal value to readers and viewers.

Answer: False

Page reference: 55

Difficulty: Easy

AACSB:

Learning Outcomes: Describe communication skills and the factors affecting communication within an organization

 

7)         One of the principal predictions of the intrinsic audience interest perspective is that coverage increases with the societal value on the issue.

Answer: False

Page reference: 55

Difficulty: Easy

AACSB:

Learning Outcomes: Describe communication skills and the factors affecting communication within an organization

 

8)         In combining the two theories of intrinsic audience interest and social significance, treatment depends more on audience interest while coverage depends more on social significance.

Answer: False

Page reference: 56

Difficulty: Easy

AACSB:

Learning Outcomes: Describe communication skills and the factors affecting communication within an organization

 

9)         The theory of media coverage and treatment gives extensive coverage to business matters and moderate coverage to environmental issues and individual rights.

Answer: False

Page reference: 56

Difficulty: Easy

AACSB:

Learning Outcomes: Describe communication skills and the factors affecting communication within an organization

 

10)       An issue is considered more newsworthy if it has a degree of immediacy.

Answer: True

Page reference: 57

Difficulty: Easy

AACSB:

Learning Outcomes: Describe communication skills and the factors affecting communication within an organization

 

11)       The media covers all issues under the same criteria of controls and editorial standards.

Answer: False

Page reference: 58-59

Difficulty: Easy

AACSB:

Learning Outcomes: Describe communication skills and the factors affecting communication within an organization

 

12)       Most news organizations in the United States are owned by for-profit companies.

Answer: True

Page reference: 59

Difficulty: Easy

AACSB:

Learning Outcomes: Describe communication skills and the factors affecting communication within an organization

 

13)       Defamation is a branch of torts pertaining to false statements made to a third party that damage a person’s reputation.

Answer: True

Page reference: 66

Difficulty: Easy

AACSB:

Learning Outcomes: Describe communication skills and the factors affecting communication within an organization

 

14)       All defamation charges need a show of actual damages.

Answer: False

Page reference: 67

Difficulty: Easy

AACSB:

Learning Outcomes: Describe communication skills and the factors affecting communication within an organization

 

15)       Slander pertains to statements that are spoken.

Answer: True

Page reference: 67

Difficulty: Easy

AACSB:

Learning Outcomes: Describe communication skills and the factors affecting communication within an organization

 

16)       Defamation cases are governed by state law and the common law.

Answer: True

Page reference: 67

Difficulty: Easy

AACSB:

Learning Outcomes: Describe communication skills and the factors affecting communication within an organization

 

17)       A defendant in a defamation case cannot use the truth defense if the statement was written or published in any form.

Answer: False

Page reference: 67

Difficulty: Easy

AACSB:

Learning Outcomes: Describe communication skills and the factors affecting communication within an organization

 

18)       Being careless or sloppy with the facts is not sufficient for a finding of libel.

Answer: False

Page reference: 67

Difficulty: Easy

AACSB:

Learning Outcomes: Describe communication skills and the factors affecting communication within an organization

 

19)       Plaintiffs in defamation against the media need not prove malicious intent.

Answer: False

Page reference: 67

Difficulty: Easy

AACSB:

Learning Outcomes: Describe communication skills and the factors affecting communication within an organization

 

20)       The truth defense is uniformly accepted in all states of the U.S.

Answer: False

Page reference: 67

Difficulty: Easy

AACSB:

Learning Outcomes: Describe communication skills and the factors affecting communication within an organization

 

21)       The First Amendment does not provide absolute defense for the news media against defamation charges.

Answer: True

Page reference: 67

Difficulty: Easy

AACSB:

Learning Outcomes: Describe communication skills and the factors affecting communication within an organization

 

22)       The New York v. Sullivan defamation case only pertains to celebrities.

Answer: False

Page reference: 67

Difficulty: Easy

AACSB:

Learning Outcomes: Describe communication skills and the factors affecting communication within an organization

 

23)       The standard for a defamation case involving a public figure is the New York Times v. Sullivan defamation case.

Answer: True

Page reference: 67-68

Difficulty: Easy

AACSB:

Learning Outcomes: Describe communication skills and the factors affecting communication within an organization

 

24)       The First Amendment of the Constitution provides strong protection for corporations against charges of libel.

Answer: True

Page reference: 68

Difficulty: Easy

AACSB:

Learning Outcomes: Describe communication skills and the factors affecting communication within an organization

 

25)       The theory of news media coverage and treatment uses the news organization as the unit of analysis.

Answer: False

Page reference: 68

Difficulty: Easy

AACSB:

Learning Outcomes: Describe communication skills and the factors affecting communication within an organization

 

26)       Assessing intrinsic audience interest in issues such as international trade policy and product safety generally lies in the domain of measurement rather than judgment.

Answer: False

Page reference: 69

Difficulty: Easy

AACSB:

Learning Outcomes: Describe communication skills and the factors affecting communication within an organization
Multiple Choice Questions:

 

27)       Which of the following is another term given to the news media?

  1. a) the Fifth Republic
  2. b) Ancien Régime
  3. c) the Watchmen
  4. d) the Fourth Estate

Answer: D

Page reference: 52

Difficulty: Easy

AACSB:

Learning Outcomes: Describe communication skills and the factors affecting communication within an organization

 

28)       Which of the following was found in Iyengar and Kinder’s study on the effect of the news media’s agenda-setting role on the public?

  1. a) Viewers readily believed that the media did not have an agenda-setting plan.
  2. b) Viewers were mostly skeptical of all reported news.
  3. c) Viewers attached greater importance to an issue after seeing news coverage of it.
  4. d) Viewers tended to lose interest in a story after it has been reported on the news.

Answer: D

Page reference: 54

Difficulty: Moderate

AACSB:

Learning Outcomes: Describe communication skills and the factors affecting communication within an organization

 

29)       In the news media environment, which of the following is considered the unit of analysis?

  1. a) advocacy and course of action
  2. b) public and interest groups
  3. c) coverage and treatment
  4. d) issues and events

Answer: D

Page reference: 54

Difficulty: Moderate

AACSB:

Learning Outcomes: Describe communication skills and the factors affecting communication within an organization

 

30)       Which of the following is true for the news media when treating issues?

  1. a) It can advocate a course of action for the issue.
  2. b) It can take a biased stand in its assessment of the issue.
  3. c) It need not take into account the potential ramification of covering the issue.
  4. d) It should not interpret facts and events of the issue.

Answer: A

Page reference: 54

Difficulty: Moderate

AACSB:

Learning Outcomes: Describe communication skills and the factors affecting communication within an organization

 

31)       To which page of the newspaper is advocacy journalism is usually restricted?

  1. a) editorial
  2. b) classifieds
  3. c) feature article
  4. d) cover page

Answer: A

Page reference: 54

Difficulty: Easy

AACSB:

Learning Outcomes: Describe communication skills and the factors affecting communication within an organization

 

32)       On which of the following premises is the intrinsic audience interest theory of news coverage based?

  1. a) that the news media organizations are owned by for non-profit firms
  2. b) that the coverage and treatment decisions are governed by the relevance of the issue
  3. c) that the coverage increases with audience interest
  4. d) that the explanatory power of the theory comes primarily from the supply side

Answer: C

Page reference: 55

Difficulty: Moderate

AACSB:

Learning Outcomes: Describe communication skills and the factors affecting communication within an organization

 

33)       According to the intrinsic audience interest theory, which of the following features of an issue increases audience interest in the issue?

  1. a) that the issue is ongoing and relevant
  2. b) that the issue is proximate to the audience
  3. c) that the issue was reported unbiased
  4. d) that the issue does not directly affect the audience

Answer: B

Page reference: 55

Difficulty: Moderate

AACSB:

Learning Outcomes: Describe communication skills and the factors affecting communication within an organization

 

34)       Which of the following is true of the societal significance perspective view of news coverage?

  1. a) It covers news based on the interest of the audience.
  2. b) It functions on the premise that coverage increases with audience interest.
  3. c) It treats its issue to appeal and retain its audience.
  4. d) It reflects the news media’s role as providing information citizens need.

Answer: D

Page reference: 55

Difficulty: Moderate

AACSB:

Learning Outcomes: Describe communication skills and the factors affecting communication within an organization

 

35)       In the United States this duty, the societal perspective view of news media is recognized in the _____, which protects the news media in its role of providing information to people.

  1. a) Fifth Amendment
  2. b) First Amendment
  3. c) Second Amendment
  4. d) Ninth Amendment

Answer: D

Page reference: 55

Difficulty: Moderate

AACSB:

Learning Outcomes: Describe communication skills and the factors affecting communication within an organization

 

36)       The societal significance perspective differs from the intrinsic audience interest perspective in that the societal significance perspective ________.

  1. a) does not assume the role of serving the people’s right to know about issues
  2. b) is not protected under the First Amendment
  3. c) promotes social issues based on audience interest
  4. d) tries to create social awareness on issues by increasing its media perception

Answer: D

Page reference: 55

Difficulty: Moderate

AACSB:

Learning Outcomes: Describe communication skills and the factors affecting communication within an organization

 

37)       According to the audience interest/societal significance continuum, which of the following is most likely to get moderate coverage with advocacy and interpretation?

  1. a) issues on environmental protection
  2. b) issues on poverty
  3. c) issues on international trade
  4. d) issues on individual rights

Answer: B

Page reference: 56

Difficulty: Moderate

AACSB:

Learning Outcomes: Describe communication skills and the factors affecting communication within an organization

 

38)       According to the audience interest/societal significance continuum, which of the following would get moderate coverage with factual treatment and interpretation?

  1. a) issues on sports
  2. b) issues on economic deregulation
  3. c) issues on international trade
  4. d) issues on corruption

Answer: A

Page reference: 56

Difficulty: Moderate

AACSB:

Learning Outcomes: Describe communication skills and the factors affecting communication within an organization

 

39)       According to the audience interest/societal significance continuum, which of the following would get the least coverage with factual treatment?

  1. a) issues on potential health risks
  2. b) issues on sports
  3. c) issues on economic deregulation
  4. d) issues on weather

Answer: C

Page reference: 56

Difficulty: Moderate

AACSB:

Learning Outcomes: Describe communication skills and the factors affecting communication within an organization

 

40)       According to the audience interest/societal significance continuum, which of the following would get the most coverage with position taking and advocacy?

  1. a) issues on corruption
  2. b) issues on poverty
  3. c) issues on sports
  4. d) issues on environmental protection

Answer: D

Page reference: 56

Difficulty: Moderate

AACSB:

Learning Outcomes: Describe communication skills and the factors affecting communication within an organization

 

41)       Shelly DuMason is reporting on a new government deregulation measure related to manufacturing. The deregulation addresses greater leeway being given to U.S. toy manufacturers using a special kind of paint. Shelly covered the story with factual detail, but got very less coverage on the report. According to the audience interest/societal significance continuum, which of the following will most likely help Shelly get extensive coverage with possible position-taking stance on the deregulation?

  1. a) if she reports on the technology involved in manufacturing such toys
  2. b) if she reports on the possible health risks of introducing such a deregulation
  3. c) if she reports on the possible corruption that could arise from such a deregulation
  4. d) if she reports on the possible effects on international trade by such a deregulation

Answer: B

Page reference: 56

Difficulty: Difficult

AACSB: Analytic skills

Learning Outcomes: Describe communication skills and the factors affecting communication within an organization

 

42)       According to the audience interest/societal significance continuum, under which of the following types of coverage is “the weather” most likely categorized?

  1. a) extensive coverage with position taking and advocacy
  2. b) moderate coverage with interpretation and advocacy
  3. c) moderate coverage with factual treatment and interpretation
  4. d) low coverage with factual treatment

Answer: C

Page reference: 56

Difficulty: Easy

AACSB:

Learning Outcomes: Describe communication skills and the factors affecting communication within an organization

 

43)       The Williamson’s Daily, a newspaper publication in the state of Gretshen, had 4 main news articles on a particular day. Of their four main reporters, Steiner was covering the hospitalization of a famous baseball player due to an overdose of permitted steroids; Joan was covering the possible landfall from a hurricane; Mark was covering corruption charges alleged against a state senator; and Jessica was covering the reduction in employment rates in the local district of Kross due to a successful government program.

 

According to the audience interest/societal significance continuum, who among the following reporters is most likely to get extensive coverage with position taking and advocacy for their articles?

  1. a) Steiner
  2. b) Joan
  3. c) Mark
  4. d) Jessica

Answer: A

Page reference: 56

Difficulty: Difficult

AACSB: Analytic skills

Learning Outcomes: Describe communication skills and the factors affecting communication within an organization

 

44)       The Williamson’s Daily, a newspaper publication in the state of Gretshen, had 4 main news articles on a particular day. Of their four main reporters, Steiner was covering the hospitalization of a famous baseball player due to an overdose of permitted steroids; Joan was covering the possible landfall from a hurricane; Mark was covering corruption charges alleged against a state senator; and Jessica was covering the reduction in employment rates in the local district of Kross due to a successful government program.

 

According to the audience interest/societal significance continuum, who among the following reporters’ articles has high societal significance but has very low audience interest?

  1. a) Steiner
  2. b) Joan
  3. c) Mark
  4. d) Jessica

Answer: D

Page reference: 56

Difficulty: Difficult

AACSB: Analytic skills

Learning Outcomes: Describe communication skills and the factors affecting communication within an organization

 

45)       The Williamson’s Daily, a newspaper publication in the state of Gretshen, had 4 main news articles on a particular day. Of their four main reporters, Steiner was covering the hospitalization of a famous baseball player due to an overdose of permitted steroids; Joan was covering the possible landfall from a hurricane; Mark was covering corruption charges alleged against a state senator; and Jessica was covering the reduction in employment rates in the local district of Kross due to a successful government program.

 

According to the audience interest/societal significance continuum, who among the following reporters’ articles is most likely to be high on societal significance but high on audience interest?

  1. a) Jessica
  2. b) Mark
  3. c) Joan
  4. d) Steiner

Answer: C

Page reference: 56

Difficulty: Difficult

AACSB: Analytic skills

Learning Outcomes: Describe communication skills and the factors affecting communication within an organization

 

46)       The TTC News Channel is covering a natural fire that has started in the vicinity of the village of San Cristen, prompting the possibility of a complete evacuation of the village. Some of the houses of San Cristen have already been destroyed. According to the theory of media coverage and treatment, which of the following would most likely increase the newsworthiness of this issue on the third day of the fire?

  1. a) an interview with a resident of San Cristen who has been an eyewitness to the fire
  2. b) an interview with a celebrity on what he or she thinks of the San Cristen fire
  3. c) an interview with a forest ranger on how the forest’s ecology could change after the fire
  4. d) an interview with a political representative of San Cristen on how to avoid further fires in San Cristen

Answer: A

Page reference: 57

Difficulty: Difficult

AACSB: Analytic skills

Learning Outcomes: Describe communication skills and the factors affecting communication within an organization

 

47)       In the United States, under which of the following political spectra would journalists be categorized?

  1. a) liberal
  2. b) moderate
  3. c) socialist
  4. d) right-wing

Answer: A

Page reference: 59

Difficulty: Easy

AACSB:

Learning Outcomes: Describe communication skills and the factors affecting communication within an organization

 

48)       Which of the following is true of defamation charges?

  1. a) It only protects individuals from defamation.
  2. b) It protects both corporations and individuals from defamation.
  3. c) It does not protect in cases where the statements made to third parties.
  4. d) Defamation cases are completely governed by federal law in the S.

Answer: B

Page reference: 66

Difficulty: Easy

AACSB:

Learning Outcomes: Describe communication skills and the factors affecting communication within an organization

 

49)       Libel differs from slander in that libel does not________.

  1. a) pertain to statements that are published or broadcast
  2. b) apply to statements made to third parties
  3. c) require a showing of actual damages
  4. d) come under the purview of any state law

Answer: C

Page reference: 67

Difficulty: Moderate

AACSB:

Learning Outcomes: Describe communication skills and the factors affecting communication within an organization

 

50)       Libel is similar to slander in that they both ________.

  1. a) don’t pertain to statements that are published or broadcast
  2. b) only apply to statements made in public
  3. c) require actual damages to be shown to be considered as violation
  4. d) are governed by state law and common law

Answer: D

Page reference: 67

Difficulty: Moderate

AACSB:

Learning Outcomes: Describe communication skills and the factors affecting communication within an organization

 

51)       Which of the following is true of slander?

  1. a) It requires a showing of actual damages.
  2. b) It is not protected under any state law.
  3. c) It pertains to statements that are either written or broadcast.
  4. d) It does not apply to statements made to third parties.

Answer: A

Page reference: 67

Difficulty: Moderate

AACSB:

Learning Outcomes: Describe communication skills and the factors affecting communication within an organization

 

52)       Which of the following is true of defense against defamation?

  1. a) The media is given absolute protection from defamation by the First Amendment.
  2. b) The truth defense constitutes an absolute defense in all S. states.
  3. c) The truth defense is subject to limitations in certain states of the S.
  4. d) The defense of privilege cannot be bought against written or broadcast statements.

Answer: C

Page reference: 67

Difficulty: Moderate

AACSB:

Learning Outcomes: Describe communication skills and the factors affecting communication within an organization

 

Essay and Review Questions:

 

53)       How can the news media help in bringing notice to nonmarket issues?

Answer: In addition to serving as an arena in which nonmarket issues are addressed, the news media plays an important role in identifying nonmarket issues and placing issues on the agendas of firms. Media coverage can

  • Alert the public, activists, interest groups, and government officeholders to nonmarket issues.
  • Raise concerns about the policies and practices of firms.
  • Provide information about the likely effects of alternative courses of action.
  • Reduce the costs of collective action.
  • Enhance a nonmarket strategy by conveying information provided by a firm or interest group.
  • Represent interests and principles consistent with the news media’s perception of its role in society.

Page reference: 52

Difficulty: Moderate

AACSB:

Learning Outcomes: Describe communication skills and the factors affecting communication within an organization

 

54)       How does the news media help identify and interpret nonmarket issues?

Answer: The news media firms and their managers must anticipate which issues will attract media coverage and how the media will treat them. Issues and events are observed by the media, which then decides whether to cover them and how to treat those it covers. Coverage and treatment provide messages to which readers and viewers are exposed and on which interest groups, politicians, firms, and others form their perceptions and base their actions. Those actions can themselves be newsworthy, attracting further coverage and giving the issue a life of its own. The messages provided by the news media are interpreted in a variety of ways depending on individuals’ prior information, beliefs, and preferences. Even though the interpretation of messages can vary, their impact can be systematic and hence important. News coverage primes viewers by affecting “what springs to mind and what is forgotten or ignored.” These agenda-setting and priming effects are important to both the development of nonmarket issues and management’s efforts to address them.

Page reference: 54

Difficulty: Moderate

AACSB:

Learning Outcomes: Describe communication skills and the factors affecting communication within an organization

 

55)       What are the different forms of treatments that news media coverage can provide?

Answer: Treatment may take several forms:

  • A straightforward presentation of facts and description of events
  • An interpretation of the facts and events
  • An exploration of their potential significance and ramifications
  • Advocacy of a course of action

Page reference: 54

Difficulty: Moderate

AACSB:

Learning Outcomes: Describe communication skills and the factors affecting communication within an organization

 

56)       Give an account of the concept of newsworthiness.

Answer: The concept of newsworthiness extends the intrinsic audience interest and perceived societal significance dimensions. An issue is more newsworthy if it has a degree of immediacy or urgency. The massive television coverage of a natural disaster such as the earthquake, tsunami, and nuclear power plant meltdown results in part because it is a breaking story. An issue is more newsworthy if it has a human interest dimension with which the audience can identify, as in stories about victims of injustice, accidents, or natural disasters. A story is also more interesting if it is told by someone involved in the issue rather than by a correspondent. An issue often is more newsworthy if it involves a celebrity. A story is more newsworthy if it involves confrontation or controversy.

Page reference: 57

Difficulty: Moderate

AACSB:

Learning Outcomes: Describe communication skills and the factors affecting communication within an organization

 

57)       Elaborate on how the news media maintains balance and fairness in their treatment of issues.

Answer: Journalism standards and editorial controls require that a story be accurate and the treatment be balanced and fair. Accuracy involves not only verifying facts but also ensuring that the story as presented portrays the situation correctly. Balance requires presenting both sides of an issue, which often involves providing an opportunity for the various sides to present their views on the issue. Fairness involves not only ensuring that those involved in an issue have an opportunity to present their views but that a person or subject is not presented or treated in an unjust manner. The latter is particularly relevant on those issues high on the societal significance dimension on which the media may take an advocacy position.

Page reference: 58

Difficulty: Moderate

AACSB:

Learning Outcomes: Describe communication skills and the factors affecting communication within an organization

 

Chapter Eleven:

Financial Markets and Their Regulation

 

True/False Questions:

 

1)         Savings and investments do not involve risks.

Answer: False

Page reference: 291

Difficulty: Easy

AACSB:

Learning Outcome: Identify the fundamental concepts and issues of international business and management

 

2)         Depository institutions such as banks are required to maintain a fractional reserve requirement, which allows the formal banking system to lend a multiple of the deposits held.

Answer: True

Page reference: 291

Difficulty: Easy

AACSB:

Learning Outcome: Identify the fundamental concepts and issues of international business and management

 

3)         If a depositor wants to withdraw her funds, the bank is not obliged to replace the funds with other deposits.

Answer: False

Page reference: 292

Difficulty: Easy

AACSB:

Learning Outcome: Identify the fundamental concepts and issues of international business and management

 

4)         Securitization involves pooling contractual debt obligations and issuing new securities backed by those obligations.

Answer: True

Page reference: 292

Difficulty: Easy

AACSB:

Learning Outcome: Identify the fundamental concepts and issues of international business and management

 

5)         Credit card borrowings and mortgage loans are the largest securitization categories.

Answer: True

Page reference: 292

Difficulty: Easy

AACSB:

Learning Outcome: Identify the fundamental concepts and issues of international business and management

 

6)         When a bank buys mortgage loans and issues new securities, it engineers the new securities so as to ensure that it alone benefits from the financial gain.

Answer: False

Page reference: 293

Difficulty: Moderate

AACSB:

Learning Outcome: Identify the fundamental concepts and issues of international business and management

 

7)         The Federal Reserve is governed by a seven-member board of governors.

Answer: True

Page reference: 295

Difficulty: Easy

AACSB:

Learning Outcome: Identify the fundamental concepts and issues of international business and management

 

8)         The Federal Reserve Bank of New York serves as overseer of banks and managed the bailout of banks during the financial crisis.

Answer: True

Page reference: 295

Difficulty: Easy

AACSB:

Learning Outcome: Identify the fundamental concepts and issues of international business and management

 

9)         The Senate’s confirmation is not required for the appointment of the members of the board of governors of the Federal Reserve.

Answer: False

Page reference: 295

Difficulty: Easy

AACSB:

Learning Outcome: Identify the fundamental concepts and issues of international business and management

 

10)      The Federal Reserve has rule-making authority over the practices of credit card companies.

Answer: True

Page reference: 295

Difficulty: Easy

AACSB:

Learning Outcome: Identify the fundamental concepts and issues of international business and management

 

11)       The Securities Exchange Act established the Securities and Exchange Commission (SEC) to regulate and police the markets and those who trade in them.

Answer: True

Page reference: 296

Difficulty: Easy

AACSB:

Learning Outcome: Identify the fundamental concepts and issues of international business and management

 

12)       The Securities Exchange Act made full disclosure unnecessary as a measure to protect the privacy of the transacting parties.

Answer: False

Page reference: 296

Difficulty: Easy

AACSB:

Learning Outcome: Identify the fundamental concepts and issues of international business and management

 

13)       The Securities Act required full disclosure when new securities were issued.

Answer: True

Page reference: 296

Difficulty: Easy

AACSB:

Learning Outcome: Identify the fundamental concepts and issues of international business and management

 

14)       The Securities Exchange Act did not regulate insider trading.

Answer: False

Page reference: 296

Difficulty: Easy

AACSB:

Learning Outcome: Identify the fundamental concepts and issues of international business and management

 

15)       Congress passed the Credit CARD Act of 2009 to decrease the regulation of credit card issuers.

Answer: False

Page reference: 296

Difficulty: Moderate

AACSB:

Learning Outcome: Identify the fundamental concepts and issues of international business and management

 

16)       When credit card issuers cancel the cards of high-risk cardholders, more people have access to credit.

Answer: False

Page reference: 296

Difficulty: Easy

AACSB:

Learning Outcome: Identify the fundamental concepts and issues of international business and management

 

17)       Independent mortgage brokers cannot be the originators of mortgage loans.

Answer: False

Page reference: 297

Difficulty: Easy

AACSB:

Learning Outcome: Identify the fundamental concepts and issues of international business and management

 

18)       The majority of members of the Financial Crisis Inquiry Commission concluded that the financial crisis was unavoidable.

Answer: False

Page reference: 298

Difficulty: Easy

AACSB:

Learning Outcome: Identify the fundamental concepts and issues of international business and management

 

19)       The majority of members of the Financial Crisis Inquiry Commission concluded that over-the-counter derivatives contributed significantly to the financial crisis.

Answer: True

Page reference: 298

Difficulty: Easy

AACSB:

Learning Outcome: Identify the fundamental concepts and issues of international business and management

 

20)       The dissenting members of the Financial Crisis Inquiry Commission identified the housing bubble as one of the essential causes of the crisis.

Answer: True

Page reference: 299

Difficulty: Easy

AACSB:

Learning Outcome: Identify the fundamental concepts and issues of international business and management

 

21)       Following the fall of Lehman Brothers in September 2008, the repo market froze leading to a severe recession.

Answer: True

Page reference: 300

Difficulty: Easy

AACSB:

Learning Outcome: Identify the fundamental concepts and issues of international business and management

 

22)       The Troubled Asset Relief Program (TARP) is administered by the Department of the Treasury.

Answer: True

Page reference: 300

Difficulty: Easy

AACSB:

Learning Outcome: Identify the fundamental concepts and issues of international business and management

 

23)       The Obama administration’s $787 billion economic stimulus program gave tax credits to first-time homebuyers, new car buyers who turned in a clunker, and homeowners who made their homes more energy efficient.

Answer: True

Page reference: 301

Difficulty: Easy

AACSB:

Learning Outcome: Identify the fundamental concepts and issues of international business and management

 

24)       No tax credit was given under the Making Work Pay program.

Answer: False

Page reference: 301

Difficulty: Easy

AACSB:

Learning Outcome: Identify the fundamental concepts and issues of international business and management

 

25)       The Dodd-Frank Act made suing an agency for fraud difficult by inhibiting investors to bring lawsuits against credit rating agencies.

Answer: False

Page reference: 306

Difficulty: Easy

AACSB:

Learning Outcome: Identify the fundamental concepts and issues of international business and management

 

Multiple Choice Questions:

 

26)       Bella, a depositor with Curio Bank, wishes to withdraw her funds. The bank ________.

  1. a) is not obliged to pay Bella
  2. b) must convince Bella to take out a loan in order to reap monthly savings
  3. c) is required to pay Bella only a fraction of the amount originally deposited by her in order to keep the reserve requirement intact
  4. d) must replace the funds with other deposits or reduce its loans after paying Bella

Answer: D

Page reference: 292

Difficulty: Difficult

AACSB: Analytic

Learning Outcome: Identify the fundamental concepts and issues of international business and management Analytic skills

 

27)       In constructing CDOs, the mortgage loans are sliced into tranches with the cash flowing first to the _____.

  1. a) most senior tranche
  2. b) mezzanine tranche
  3. c) equity tranche
  4. d) non-investment grade tranche

Answer: A

Page reference: 293

Difficulty: Moderate

AACSB:

Learning Outcome: Identify the fundamental concepts and issues of international business and management

 

28)       Which of the following is true with regard to the securitization of mortgage loans?

  1. a) The loans used to back the collateralized debt obligations (CDOs) have risks that cannot be diversified.
  2. b) In the securitization of mortgages, diversification cannot be achieved by pooling mortgages for house purchases in different parts of the country.
  3. c) The bank buying mortgage loans issues new securities referred to as collateralized debt obligations (CDOs).
  4. d) In constructing collateralized debt obligations (CDOs), cash flows from the mortgages to the tranches reflect a spiral model.

Answer: C

Page reference: 293

Difficulty: Moderate

AACSB:

Learning Outcome: Identify the fundamental concepts and issues of international business and management

 

29)       Which of the following serves as overseer of banks and managed the bailout of banks during the financial crisis?

  1. a) the World Bank
  2. b) the Federal Reserve Bank of New York
  3. c) the International Monetary Fund
  4. d) the Citigroup

Answer: B

Page reference: 295

Difficulty: Easy

AACSB:

Learning Outcome: Identify the fundamental concepts and issues of international business and management

 

30)       The members of the board of governors of the Federal Reserve are appointed by the ________.

  1. a) president
  2. b) Senate
  3. c) secretary of state
  4. d) chairman of the Federal Reserve

Answer: A

Page reference: 295

Difficulty: Easy

AACSB:

Learning Outcome: Identify the fundamental concepts and issues of international business and management

 

31)       The appointment of the members of the board of governors of the Federal Reserve is confirmed by the________.

  1. a) president
  2. b) Senate
  3. c) chairman of the Federal reserve
  4. d) secretary of state

Answer: B

Page reference: 295

Difficulty: Easy

AACSB:

Learning Outcome: Identify the fundamental concepts and issues of international business and management

 

32)       The first New Deal legislation enacted was the ________.

  1. a) Glass-Steagall Act of 1933
  2. b) Consumer Protection Act of 2010
  3. c) Securities Act of 1933
  4. d) Securities Exchange Act of 1934

Answer: C

Page reference: 295

Difficulty: Easy

AACSB:

Learning Outcome: Identify the fundamental concepts and issues of international business and management

 

33)       The ________ forced banks to separate their commercial banking and investment banking businesses.

  1. a) Glass-Steagall Act of 1933
  2. b) Consumer Protection Act of 2010
  3. c) Securities Act of 1933
  4. d) Securities Exchange Act of 1934

Answer: A

Page reference: 296

Difficulty: Easy

AACSB:

Learning Outcome: Identify the fundamental concepts and issues of international business and management

 

34)       The ________ established the Federal Deposit Insurance Corporation (FDIC) to insure deposits in banks.

  1. a) Glass-Steagall Act of 1933
  2. b) Consumer Protection Act of 2010
  3. c) Securities Act of 1933
  4. d) Securities Exchange Act of 1934

Answer: A

Page reference: 296

Difficulty: Easy

AACSB:

Learning Outcome: Identify the fundamental concepts and issues of international business and management

 

35)       After two decades of political activity by banks, the Glass-Steagall Act was repealed by the ________.

  1. a) Consumer Protection Act of 2010
  2. b) Securities Exchange Act of 1934
  3. c) Gramm-Leach-Bliley Act of 1999
  4. d) Dodd-Frank Act of 2010

Answer: C

Page reference: 296

Difficulty: Easy

AACSB:

Learning Outcome: Identify the fundamental concepts and issues of international business and management

 

36)       The Credit CARD (Card Accountability Responsibility and Disclosure) Act of 2009 was passed to ________.

  1. a) increase the regulation of credit card issuers
  2. b) increase the dropping interest rates on credit card borrowings
  3. c) reduce the notice period for late fees
  4. d) enhance the ability of card issuers to use risk-based pricing

Answer: A

Page reference: 296

Difficulty: Easy

AACSB:

Learning Outcome: Identify the fundamental concepts and issues of international business and management

 

37)       Which of the following forms a part of the principal conclusions reached by the majority of members of the Financial Crisis Inquiry Commission (FCIC) with regard to the causes of the financial crisis?

  1. a) that there was no systematic breakdown in accountability and ethics
  2. b) that the financial crisis was unavoidable
  3. c) that the contribution of over-the-counter derivatives to the crisis was insignificant
  4. d) that the failures of the credit rating agencies were essential cogs in the wheel of financial destruction

Answer: D

Page reference: 298

Difficulty: Easy

AACSB:

Learning Outcome: Identify the fundamental concepts and issues of international business and management

 

38)       Which of the following is true with regard to the report issued by the Financial Crisis Inquiry Commission (FCIC) in 2011 on the causes of the financial crisis?

  1. a) The majority laid much of the blame on the role of Fannie Mae and Freddie Mac.
  2. b) The majority held the Community Reinvestment Act (CRA) primarily responsible for the crisis.
  3. c) The majority concluded that Wall Street and its securitization of high-risk mortgages did not contribute significantly to the crisis.
  4. d) The majority concluded that stronger regulation and more vigilant enforcement could have prevented the crisis.

Answer: D

Page reference: 298

Difficulty: Easy

AACSB:

Learning Outcome: Identify the fundamental concepts and issues of international business and management

 

39)       Dissenters criticized the majority report issued by the Financial Crisis Inquiry Commission (FCIC) on the grounds that the majority ________.

  1. a) unfairly blamed nontraditional mortgages as the essential cause of the crisis
  2. b) failed to identify systematic breakdown in accountability and ethics as one of the essential causes of the crisis
  3. c) unfairly blamed the credit bubble for the crisis
  4. d) ignored evidence of a crisis in Europe at the same time as the one in the United States

Answer: D

Page reference: 299

Difficulty: Moderate

AACSB:

Learning Outcome: Identify the fundamental concepts and issues of international business and management

 

40)       According to the dissenters, who criticized the majority report issued by the Financial Crisis Inquiry Commission (FCIC), ________ was one of the essential causes of the crisis.

  1. a) traditional mortgages
  2. b) widespread failures in financial regulation
  3. c) breakdown in ethics
  4. d) the fall in housing prices

Answer: D

Page reference: 299

Difficulty: Moderate

AACSB:

Learning Outcome: Identify the fundamental concepts and issues of international business and management

 

41)       As the severity of the crisis became clearer in 2008, the Bush administration and Congress created the ________, which was authorized with funding up to $700 billion to be used to shore up banks and stimulate the provision of credit to borrowers.

  1. a) Making Homes Affordable Program
  2. b) Making Work Pay Program
  3. c) Affirmative Action Program
  4. d) Troubled Asset Relief Program

Answer: D

Page reference: 300

Difficulty: Easy

AACSB:

Learning Outcome: Identify the fundamental concepts and issues of international business and management

 

42)       Which of the following is true of TARP?

  1. a) TARP was created by the Obama administration to stimulate the economy.
  2. b) TARP was successful in preventing a collapse of the financial system.
  3. c) TARP was authorized with funding up to $350 billion.
  4. d) Most of the TARP funds provided to banks were not repaid.

Answer: B

Page reference: 300

Difficulty: Easy

AACSB:

Learning Outcome: Identify the fundamental concepts and issues of international business and management

 

43)       Which of the following is true with regard to the Obama administration’s $787 billion economic stimulus program?

  1. a) Most Americans benefitted from the stimulus as the employment rate reached a record high.
  2. b) First-time homebuyers were denied tax credits under the program.
  3. c) Income tax rates were not reduced under the program but withholding rates were.
  4. d) No tax credit was given under the Making Work Pay program.

Answer: C

Page reference: 301

Difficulty: Easy

AACSB:

Learning Outcome: Identify the fundamental concepts and issues of international business and management

 

44)       The Volcker Rule was aimed at ________.

  1. a) penalizing customers who defaulted on interest payments
  2. b) increasing the regulation of credit card issuers
  3. c) reducing speculative investments by banks
  4. d) regulating credit rating agencies

Answer: C

Page reference: 302

Difficulty: Easy

AACSB:

Learning Outcome: Identify the fundamental concepts and issues of international business and management

 

45)       The Consumer Financial Protection Bureau (CFPB) has authority over ________.

  1. a) auto dealers
  2. b) hot dog vendors
  3. c) banks with assets under $8 billion
  4. d) banks with assets over $10 billion

Answer: D

Page reference: 303

Difficulty: Easy

AACSB:

Learning Outcome: Identify the fundamental concepts and issues of international business and management

 

46)       The structure of Wall Street compensation was criticized on the ground that ________.

  1. a) the current cash bonus system discouraged risk-taking in the financial system
  2. b) the compensation for bankers and traders on Wall Street included a nominal annual bonus
  3. c) the current cash bonus system provided strong incentives for short-term performance but weak incentives for long-term performance
  4. d) deferred incentive compensation with a higher base salary multiplied “material risk” on the bank

Answer: C

Page reference: 305

Difficulty: Easy

AACSB:

Learning Outcome: Identify the fundamental concepts and issues of international business and management

 

47)       Which of the following is true of credit rating agencies?

  1. a) The credit rating agencies were prompt in recognizing the riskiness of the mortgage-backed securities that were at the center of the financial crisis.
  2. b) The credit rating agencies were widely criticized for failing to appreciate the risks associated with the collateralized debt instruments.
  3. c) Credit rating agencies are government-owned companies.
  4. d) The ratings issued by the credit rating agencies have always been accurate in their risk assessment.

Answer: B

Page reference: 306

Difficulty: Easy

AACSB:

Learning Outcome: Identify the fundamental concepts and issues of international business and management

 

48)       Which of the following is true with regard to the Dodd-Frank Act?

  1. a) The Act made suing an agency for fraud easier by allowing investors to bring lawsuits against credit rating agencies that knowingly or recklessly failed to conduct a reasonable investigation of the rated security.
  2. b) The Act dissolved the Office of Credit Ratings and relaxed internal controls by the credit rating agencies.
  3. c) The Act restructured the ratings system.
  4. d) The Act forced banks to separate their commercial banking and investment banking businesses.

Answer: A

Page reference: 306

Difficulty: Moderate

AACSB:

Learning Outcome: Identify the fundamental concepts and issues of international business and management

 

49)       The Basel Committee on Banking Supervision is an organization of 27 nations that ________.

  1. a) created the Troubled Asset Relief Program in 2008
  2. b) issued a 633-page report in 2011 blaming the dramatic failures of corporate governance and risk management for the financial crisis
  3. c) sets capital requirements for banks
  4. d) sets ethical standards for shadow banks

Answer: C

Page reference: 307

Difficulty: Easy

AACSB:

Learning Outcome: Identify the fundamental concepts and issues of international business and management

 

50)       In the late 1990s the Basel Committee had lowered capital requirements in the ________ agreement, and after the financial crisis the focus in ________ was on raising capital requirements.

  1. a) Basel I; Basel II
  2. b) Basel II; Basel III
  3. c) Basel III; Basel IV
  4. d) Basel IV; Basel V

Answer: B

Page reference: 307

Difficulty: Easy

AACSB:

Learning Outcome: Identify the fundamental concepts and issues of international business and management

 

Essay and Review Questions

 

51)       State the purpose behind the establishment of the Federal Reserve System and briefly explain its function.

Answer: The Federal Reserve System was established in 1913 and serves as the central bank of the United States. It has broad responsibilities for managing the money supply and has regulatory authority over national banks and state banks that participate in the Federal Reserve System. The Federal Reserve provides liquidity to the financial system through its credit window and has certain regulatory responsibility pertaining to consumer credit. The Federal Reserve is governed by a seven-member board of governors whose chairman is Ben Bernanke. The Fed is composed of 12 regional Federal Reserve Banks, and the Federal Reserve Bank of New York serves as overseer of banks and managed the bailout of banks during the financial crisis. The Federal Reserve is independent of the presidential administration, although the members of the board of governors are appointed by the president and confirmed by the Senate. The term of office for a board member is 14 years, and the chairman and vice chairman have 4-year terms. The Federal Reserve is also independent of the congressional budget process, since it earns large profits that finance its operations with its surpluses paid to the Treasury. The Federal Reserve is thus an independent central bank. The Federal Reserve is subject to the acts of Congress, and Congress has refrained from altering its independence. Congress has, however, assigned the Fed certain responsibilities for consumer credit giving it rule-making authority over the practices of credit card companies, particularly focusing on disclosure. The Federal Reserve also has responsibilities for certain lending practices, such as the subprime lending by consumer finance companies.

Page reference: 295

Difficulty: Moderate

AACSB:

Learning Outcome: Identify the fundamental concepts and issues of international business and management

 

52)       Write short notes on credit card regulation.

Answer: Borrowing on credit cards reached nearly $1 trillion in 2008, and Congress has been active in regulating practices in the industry. Consumers complained about large and sudden increases in interest rates on credit card borrowings and about late fees imposed without adequate notice, among other practices. In response Congress passed the Credit CARD (Card Accountability Responsibility and Disclosure) Act of 2009 to increase the regulation of credit card issuers. The Act as well as regulations by the Federal Reserve System provided transparency to credit card users and also significantly restricted the practices of the card issuers. Regulations intended to eliminate abuses can have effects on markets. The new regulations restricted the ability of card issuers to use risk-based pricing and to re-price risks when a cardholder had a credit event. The reduced pricing flexibility meant that risks could not be priced efficiently. The issuer then had the choice between bearing the risk, imposing the costs on other cardholders, or cancelling the card. Bearing the risk forces other cardholders to cross-subsidize the high-risk cardholder through higher average interest rates, whereas cancelling the card avoids cross-subsidization by letting high-risk cardholders turn elsewhere for credit. Kenneth Clayton of the American Bankers Association said, “Prior to the Card Act, we were able to charge people for the risk they posed and, as a result, also allowed others to pay lower rates.” When credit card issuers cancel the cards of high-risk cardholders, fewer people have access to credit.

Page reference: 296

Difficulty: Moderate

AACSB:

Learning Outcome: Identify the fundamental concepts and issues of international business and management

 

53)       List the principal conclusions of the majority of members of The Financial Crisis Inquiry Commission (FCIC).

Answer: The principal conclusions of the majority were:

  1. This financial crisis was avoidable.
  2. Widespread failures in financial regulation and supervision proved devastating to the stability of the nation’s financial markets.
  3. Dramatic failures of corporate governance and risk management at many systemically important financial institutions was a key cause of this crisis.
  4. A combination of excessive borrowing, risky investments, and lack of transparency put the financial system on a collision course with crisis.
  5. The government was ill prepared for the crisis, and its inconsistent response added to the uncertainty and panic in the financial markets.
  6. There was a systematic breakdown in accountability and ethics.
  7. Collapsing mortgage-lending standards and the mortgage securitization pipeline lit and spread the flame of contagion and crisis.
  8. Over-the-counter derivatives contributed significantly to this crisis.
  9. The failures of the credit rating agencies were essential cogs in the wheel of financial destruction.

Page reference: 298

Difficulty: Easy

AACSB:

Learning Outcome: Identify the fundamental concepts and issues of international business and management

 

54)       Three of the dissenters characterized the majority report issued by the Financial Crisis Inquiry Commission (FCIC) as a compilation of all the bad events that took place rather than as an explanation of the critical factors that caused the crisis. What were the essential causes of the crisis according to the dissenters?

Answer: The dissenters identified 10 essential causes of the crisis:

  1. Credit bubble
  2. Housing bubble
  3. Nontraditional mortgages
  4. Credit ratings and securitization
  5. Financial institutions concentrated correlated risks
  6. Leverage and liquidity risk
  7. Risk of contagion
  8. Common shock (the fall in housing prices)
  9. Financial shock and panic
  10. Financial crisis causes economic crisis

Page reference: 299

Difficulty: Easy

AACSB:

Learning Outcome: Identify the fundamental concepts and issues of international business and management

 

55)       Write short notes on the Volcker rule.

Answer: To reduce speculative investments by banks, former Federal Reserve chairman Paul Volcker advocated prohibiting banks that take deposits from engaging in proprietary trading. A “Volcker Rule” was included in the Dodd-Frank Act after heated debate and was subsequently subject to extensive rule-making activity to refine the restrictions. The rule allowed banks to trade on behalf of clients and to hedge their own risks. Under the rule a bank’s ownership in hedge funds and private equity funds was restricted to no more than 3 percent of its Tier 1 capital, composed of common equity, retained earnings, and certain nonredeemable preferred stock. A bank also was restricted from owning more than 3 percent of a hedge fund or private equity fund. These requirements covered non-depository banks such as Goldman Sachs and Morgan Stanley. Nonbank financial companies including hedge funds were required to register as investment advisors and be subject to restrictions on capital requirements and investments as determined by rules to be determined by regulators. They may also be subject to supervision by the Federal Reserve if so designated by the Financial Stability Oversight Council.

Page reference: 302

Difficulty: Moderate

AACSB:

Learning Outcome: Identify the fundamental concepts and issues of international business and management

 

Chapter Twenty One:

Ethics Systems: Utilitarianism

 

True/False Questions:

 

1)         Ethics is an important foundation for the positive analysis of nonmarket issues.

Answer: True

Page reference: 594

Difficulty: Easy

AACSB:

Learning Outcomes: Discuss the role of ethics and social responsibility in management

 

2)         The focus of ethics is primarily on issues involving direct mutual advantage.

Answer: False

Page reference: 595

Difficulty: Easy

AACSB:

Learning Outcomes: Discuss the role of ethics and social responsibility in management

 

3)         Business ethics pertains to situations in which individuals are in an organizational position and act as agents of the company and its owners.

Answer: True

Page reference: 595

Difficulty: Easy

AACSB:

Learning Outcomes: Discuss the role of ethics and social responsibility in management

 

4)         Ethics involves an inquiry into whether a proposition has legal status.

Answer: False

Page reference: 596

Difficulty: Easy

AACSB:

Learning Outcomes: Discuss the role of ethics and social responsibility in management

 

5)         A granted proposition is one that has been established either by ethical consensus or by an authoritative body such as government.

Answer: True

Page reference: 596

Difficulty: Easy

AACSB:

Learning Outcomes: Discuss the role of ethics and social responsibility in management

 

6)         Casuistry is principled reasoning and is distinguished from ethics, which is an approach to moral practice that seeks to balance competing considerations.

Answer: False

Page reference: 597

Difficulty: Easy

AACSB:

Learning Outcomes: Discuss the role of ethics and social responsibility in management

 

7)         Moral philosophy concentrates on how the state should grant and limit liberties, and ensure justice.

Answer: False

Page reference: 600

Difficulty: Easy

AACSB:

Learning Outcomes: Discuss the role of ethics and social responsibility in management

 

8)         Utilitarianism is better understood as a particular form of a consequentialist moral philosophy.

Answer: True

Page reference: 600

Difficulty: Easy

AACSB:

Learning Outcomes: Discuss the role of ethics and social responsibility in management

 

9)         Aggregation is required because an action may make some individuals better off and others worse off.

Answer: True

Page reference: 600

Difficulty: Easy

AACSB:

Learning Outcomes: Discuss the role of ethics and social responsibility in management

 

10)       The standard of human well-being and the need to consider the consequences for all persons correspond to fundamental ethical intuitions.

Answer: True

Page reference: 600

Difficulty: Easy

AACSB:

Learning Outcomes: Discuss the role of ethics and social responsibility in management

 

11)       Utilitarianism focuses on the numbers of people who are better or worse off because of an action.

Answer: False

Page reference: 600

Difficulty: Easy

AACSB:

Learning Outcomes: Discuss the role of ethics and social responsibility in management

 

12)       Utilitarianism coincides with self-interest only when societal consequences are prioritized over private consequences.

Answer: False

Page reference: 601

Difficulty: Easy

AACSB:

Learning Outcomes: Discuss the role of ethics and social responsibility in management

 

13)       The institutions of private property and markets provide one means of alignment, since a voluntary transaction, such as a supply contract between two firms, makes both the buyer and seller better off.

Answer: True

Page reference: 601

Difficulty: Easy

AACSB:

Learning Outcomes: Discuss the role of ethics and social responsibility in

management

 

14)       When markets are competitive and institutions are in place that align self-interest with societal well-being, the maximization of profit by a firm results in the greatest aggregate societal well-being.

Answer: True

Page reference: 602

Difficulty: Easy

AACSB:

Learning Outcomes: Discuss the role of ethics and social responsibility in management

 

15)       Utilitarianism gives equal weight to the utilities of all persons.

Answer: True

Page reference: 602

Difficulty: Easy

AACSB:

Learning Outcomes: Discuss the role of ethics and social responsibility in management

 

16)       Utilitarianism does not take altruism into account.

Answer: False

Page reference: 602

Difficulty: Easy

AACSB:

Learning Outcomes: Discuss the role of ethics and social responsibility in management

 

17)       The Calabresi and Melamed principles provide a framework for reasoning about the assignment of duty.

Answer: True

Page reference: 603

Difficulty: Easy

AACSB:

Learning Outcomes: Discuss the role of ethics and social responsibility in

management

 

18)       Act utilitarianism focuses on a general rule of behavior to be followed by all individuals in all similar situations.

Answer: False

Page reference: 603

Difficulty: Easy

AACSB:

Learning Outcomes: Discuss the role of ethics and social responsibility in

management

 

19)       Instrumental rights have moral standing independent of the consequences they yield.

Answer: False

Page reference: 606

Difficulty: Easy

AACSB:

Learning Outcomes: Discuss the role of ethics and social responsibility in

management

 

20)       Utilitarianism provides a basis for evaluating intrinsic rights.

Answer: False

Page reference: 606

Difficulty: Easy

AACSB:

Learning Outcomes: Discuss the role of ethics and social responsibility in

management

 

21)       Utilitarianism is criticized for its focus solely on human well-being.

Answer: True

Page reference: 607

Difficulty: Easy

AACSB:

Learning Outcomes: Discuss the role of ethics and social responsibility in

management

 

22)       Utilitarianism is regularly used to evaluate public policies by measuring benefits and costs in monetary units.

Answer: True

Page reference: 607

Difficulty: Easy

AACSB:

Learning Outcomes: Discuss the role of ethics and social responsibility in

management

 

23)       Cost-benefit analysis focuses on the costs required to reduce risks and compares the alternative in question with other alternatives.

Answer: False

Page reference: 609

Difficulty: Easy

AACSB:

Learning Outcomes: Discuss the role of ethics and social responsibility in

management

 

24)       The law of torts is an institution that is inconsistent with utilitarianism.

Answer: False

Page reference: 609

Difficulty: Easy

AACSB:

Learning Outcomes: Discuss the role of ethics and social responsibility in

management

 

25)       Confucianism is a consequentialist system of ethics that defines the good in terms

of human well-being and evaluates that well-being in terms of individuals’ preferences.

Answer: False

Page reference: 612

Difficulty: Easy

AACSB:

Learning Outcomes: Summary

 

Multiple Choice Questions:

 

26)       Ethics is the discipline concerned with judgments based on ________ and the reasoning therefrom.

  1. a) political correctness
  2. b) constitutional provisions
  3. c) moral standards
  4. d) cultural taboos

Answer: C

Page reference: 595

Difficulty: Easy

AACSB:

Learning Outcomes: Discuss the role of ethics and social responsibility in management

 

27)       Which of the following is true with regard to ethics?

  1. a) Ethics is a systematic approach to moral judgments based on reason, analysis, synthesis, and reflection.
  2. b) Issues involving direct mutual advantage require rigorous ethics analysis.
  3. c) Ethics is based on political correctness and is mandated by the government or other authoritative bodies.
  4. d) Good ethics is always profitable.

Answer: A

Page reference: 595

Difficulty: Easy

AACSB:

Learning Outcomes: Discuss the role of ethics and social responsibility in

management

 

28)       Ethics principles prescribe behavior based on considerations that take precedence over ________.

  1. a) consequentialism
  2. b) altruism
  3. c) societal wellbeing
  4. d) self-interest

Answer: D

Page reference: 596

Difficulty: Easy

AACSB:

Learning Outcomes: Discuss the role of ethics and social responsibility in

management

 

29)       ________ is an approach to moral practice that seeks to balance competing considerations by making exceptions to ethics principles in particular cases.

  1. a) Moral philosophy
  2. b) Political philosophy
  3. c) Utilitarianism
  4. d) Casuistry

Answer: D

Page reference: 597

Difficulty: Easy

AACSB:

Learning Outcomes: Discuss the role of ethics and social responsibility in management

 

30)       Which of the following is true with regard to casuistry?

  1. a) Casuistry is principled reasoning.
  2. b) Casuistry has been characterized as a false art of making exceptions in particular situations, resulting in the violation of underlying principles.
  3. c) Casuist approach is similar to the ethics systems and is intended to apply universally.
  4. d) The casuist approach involves the application of principles in favor of conceptions of responsibility that is consistent with moral standards.

Answer: B

Page reference: 597

Difficulty: Easy

AACSB:

Learning Outcomes: Discuss the role of ethics and social responsibility in

management

 

31)       Why is the casuist approach criticized?

  1. a) It shortcuts the application of principles in favor of conceptions of responsibility that may be inconsistent with moral standards.
  2. b) It leaves no room for interpretation in different situations.
  3. c) It cannot be molded to suit individual cases.
  4. d) It does not take the decision maker’s self-interest into account.

Answer: A

Page reference: 598

Difficulty: Easy

AACSB:

Learning Outcomes: Discuss the role of ethics and social responsibility in management

 

32)       Moral philosophy is concerned with deducing moral standards from ________.

  1. a) self-evident principles
  2. b) legal precepts
  3. c) tautological statements
  4. d) political maxims

Answer: A

Page reference: 599

Difficulty: Easy

AACSB:

Learning Outcomes: Discuss the role of ethics and social responsibility in management

 

33)       The basis for ________ is the self-evident principle that what matters is human well-being.

  1. a) positivism
  2. b) utilitarianism
  3. c) fundamentalism
  4. d) hedonism

Answer: B

Page reference: 599

Difficulty: Easy

AACSB:

Learning Outcomes: Discuss the role of ethics and social responsibility in management

 

34)       Moral philosophy is concerned with ________.

  1. a) deducing the standard of maximizing one’s self-interest
  2. b) the pursuit of pleasure as the highest good
  3. c) deducing standards from axioms or self-evident principles
  4. d) making exceptions in particular situations, resulting in the violation of underlying principles

Answer: C

Page reference: 599

Difficulty: Easy

AACSB:

Learning Outcomes: Discuss the role of ethics and social responsibility in management

 

35)       Utilitarianism provides a basis for a(n) ________ in which the choice between private institutions and public institutions is made according to which maximizes aggregate well-being.

  1. a) moral claim
  2. b) ethical claim
  3. c) moral philosophy
  4. d) political philosophy

Answer: D

Page reference: 600

Difficulty: Easy

AACSB:

Learning Outcomes: Discuss the role of ethics and social responsibility in

management

 

36)       ________ focus(es) on institutions to govern the interactions among individuals.

  1. a) Moral philosophy
  2. b) Political philosophy
  3. c) Cultural taboos
  4. d) Ethics

Answer: B

Page reference: 600

Difficulty: Easy

AACSB:

Learning Outcomes: Discuss the role of ethics and social responsibility in management

 

37)       ________ is required because an action may make some individuals better off and others worse off.

  1. a) Aggregation
  2. b) Collateralization
  3. c) Altruism
  4. d) Fundamentalism

Answer: A

Page reference: 600

Difficulty: Easy

AACSB:

Learning Outcomes: Discuss the role of ethics and social responsibility in

management

 

38)       Utilitarianism ________ only when societal consequences are aligned with private consequences.

  1. a) enters into conflict with self-interest
  2. b) coincides with altruism
  3. c) coincides with self-interest
  4. d) coincides with fundamentalism

Answer: C

Page reference: 601

Difficulty: Moderate

AACSB:

Learning Outcomes: Discuss the role of ethics and social responsibility in

management

 

39)       Utilitarianism aggregates individuals’ well-being as evaluated in terms of their ________, and every person’s utility is given equal weight.

  1. a) actions
  2. b) preferences
  3. c) choices
  4. d) capabilities

Answer: B

Page reference: 602

Difficulty: Easy

AACSB:

Learning Outcomes: Discuss the role of ethics and social responsibility in

management

 

40)       Utilitarianism is a moral philosophy that holds that ________.

  1. a) the morally justified action has no bearing on aggregate well-being
  2. b) the rightness of an action is judged by an individual’s willingness to perform that action
  3. c) human well-being is evaluated in terms of individuals’ capabilities.
  4. d) moral good is judged in terms of consequences

Answer: D

Page reference: 602

Difficulty: Easy

AACSB:

Learning Outcomes: Discuss the role of ethics and social responsibility in management

 

41)       ________ is the antithesis of self-interest.

  1. a) Paganism
  2. b) Functionalism
  3. c) Hedonism
  4. d) Utilitarianism

Answer: D

Page reference: 602

Difficulty: Easy

AACSB:

Learning Outcomes: Discuss the role of ethics and social responsibility in management

 

42)       Utilitarianism and ________ are equivalent only if private well-being and societal well-being are aligned.

  1. a) casuistry
  2. b) philanthropy
  3. c) altruism
  4. d) self-interest

Answer: D

Page reference: 602

Difficulty: Easy

AACSB:

Learning Outcomes: Discuss the role of ethics and social responsibility in management

 

43)       Act utilitarianism focuses on ________.

  1. a) making exceptions in particular situations, resulting in the violation of underlying principles
  2. b) institutions to govern the interactions among individuals
  3. c) the consequences of a particular action in a particular situation
  4. d) balancing competing considerations by making exceptions to ethics principles

Answer: C

Page reference: 603

Difficulty: Easy

AACSB:

Learning Outcomes: Discuss the role of ethics and social responsibility in

management

 

44)       The ________ yields the greatest aggregate well-being when everyone follows it.

  1. a) moral rule
  2. b) social rule
  3. c) rule of law
  4. d) rule of religious orders

Answer: A

Page reference: 603

Difficulty: Easy

AACSB:

Learning Outcomes: Discuss the role of ethics and social responsibility in

management

 

45)       ________ focuses on individual actions and does not explain what the overall consequences would be for society if everyone were to act in that manner.

  1. a) Casuistry
  2. b) Political philosophy
  3. c) Rule utilitarianism
  4. d) Act utilitarianism

Answer: D

Page reference: 604

Difficulty: Easy

AACSB:

Learning Outcomes: Discuss the role of ethics and social responsibility in

management

 

46)       Rule utilitarianism encourages ________.

  1. a) universalism
  2. b) unilateralism
  3. c) fundamentalism
  4. d) ethical violation

Answer: A

Page reference: 604

Difficulty: Easy

AACSB:

Learning Outcomes: Discuss the role of ethics and social responsibility in

management

 

47)       Intrinsic rights are to be respected because ________.

  1. a) they have moral standing independent of the consequences they yield
  2. b) they lead to desirable consequences
  3. c) they lead to the maximization of individual well-being
  4. d) they have legal standing and are codified by the state

Answer: A

Page reference: 606

Difficulty: Moderate

AACSB:

Learning Outcomes: Discuss the role of ethics and social responsibility in

management

 

48)       Instrumental rights are justified in a(n) ________, such as utilitarianism.

  1. a) deontological system
  2. b) pluralistic system
  3. c) consequentialist system
  4. d) secondary system

Answer: C

Page reference: 606

Difficulty: Easy

AACSB:

Learning Outcomes: Discuss the role of ethics and social responsibility in

management

 

49)       Consequentialist systems are criticized because they ________.

  1. a) tend to favor fundamental rights over instrumental rights
  2. b) treat aspirations, wants, needs, liberties, and opportunities as relevant regardless of their consequences
  3. c) focus solely on the welfare of human beings
  4. d) do not give adequate attention to intrinsic rights and liberties, which are said to be fundamentally important

Answer: D

Page reference: 606

Difficulty: Easy

AACSB:

Learning Outcomes: Discuss the role of ethics and social responsibility in

management

 

50)       A fundamental problem with utilitarianism is its ________.

  1. a) apathy toward maximizing aggregate utility
  2. b) incompatibility with altruism and philanthropy
  3. c) difficulty with making interpersonal comparisons of utility
  4. d) inability to judge moral good in terms of consequences

Answer: C

Page reference: 607

Difficulty: Easy

AACSB:

Learning Outcomes: Discuss the role of ethics and social responsibility in

management

 

51)       When actions make some individuals better off and others worse off, ________ are necessary in applying utilitarianism.

  1. a) cap-and-trade systems
  2. b) interpersonal comparisons
  3. c) cost-benefit analyses
  4. d) casuistic approaches

Answer: B

Page reference: 607

Difficulty: Easy

AACSB:

Learning Outcomes: Discuss the role of ethics and social responsibility in

management

 

52)       ________ avoids interpersonal comparisons, since it requires only that an action make at least one person better off and no one worse off, evaluated in terms of the preferences of each person.

  1. a) The Calabresi and Melamed principle
  2. b) The Pareto criterion
  3. c) Self-confirming equilibrium
  4. d) Tragedy of the commons

Answer: B

Page reference: 607

Difficulty: Easy

AACSB:

Learning Outcomes: Discuss the role of ethics and social responsibility in

management

 

53)       If a firm makes a product that is hazardous when misused, and if

misuse can be anticipated, the firm can make decisions about safety features under a ________ standard.

  1. a) casuistic
  2. b) utilitarian
  3. c) political
  4. d) moral

Answer: B

Page reference: 609

Difficulty: Moderate

AACSB:

Learning Outcomes: Discuss the role of ethics and social responsibility in management

 

54)       The framework for the application of utilitarianism begins with the identification of ________.

  1. a) the facts of the situation and the moral concerns
  2. b) the set of consequences for all persons and organizations affected
  3. c) the alternative rules of behavior and actions
  4. d) the social costs and social benefits

Answer: A

Page reference: 610

Difficulty: Easy

AACSB:

Learning Outcomes: Discuss the role of ethics and social responsibility in

management

 

55)       When consequences are a function of the actions of more than one individual,

________ considers the actions of all individuals simultaneously.

  1. a) rule utilitarianism
  2. b) act utilitarianism
  3. c) fundamentalism
  4. d) hedonism

Answer: A

Page reference: 612

Difficulty: Easy

AACSB:

Learning Outcomes: Summary

 

Essay and Review Questions:

 

56)       Write a short note on casuistry. Why is this approach considered dangerous?

Answer: Ethics is principled reasoning and is distinguished from casuistry, which is an approach to moral practice that seeks to balance competing considerations by making exceptions to ethics principles in particular cases. Casuistry is an ancient approach that reemerged during the Reformation in the sixteenth century as the argument that different principles were applicable to different situations and in different roles. For example, a ruler might violate principles in an attempt to benefit his subjects. Casuistry was attacked by Pascal, who argued that although they may have been well intentioned, casuist methods were flawed and the results therefore questionable. Casuistry has been characterized as a false art of making exceptions in particular situations, resulting in the violation of underlying principles. This approach is contrary to the ethics systems considered here, which are intended to apply universally.

The casuist approach is dangerous precisely because it shortcuts the application of principles in favor of conceptions of responsibility that may be inconsistent with moral standards. Furthermore, those conceptions can be a disguise for the self-interest of the decision maker. Several factors indicate when casuistry is being practiced. It is often present in situations in which the action the manager wants to take is identified by self-interest, the firm’s interest, or stakeholders’ interests. Casuistry may be present when managers find themselves searching for a justification for the actions they wish to take based on self-interest. It may also be present when a manager tries to rationalize around principles using the justification that stakeholders benefit.

Page reference: 597

Page reference: 598

Difficulty: Moderate

AACSB:

Learning Outcomes: Discuss the role of ethics and social responsibility in

management

 

57)       Discuss the methodology of ethics in brief.

Answer: The methodology of ethics involves the identification of decision alternatives, evaluation of those alternatives in terms of ethics principles and

moral standards, and choice based on those evaluations. Ethics analysis is to be applied early rather than late in the process.

Ethics that serves only to explain decisions made on other bases is inappropriate. It encourages managers to choose actions that serve their and their firms’ interests and then to search among the various ethics systems to find one that comes closest to justifying the already-chosen action. This does not mean that when correctly applied, ethics cannot be used to justify the action taken. That justification, however, should be consistent with the basis for the decision.

The methodology begins with the identification of the facts about the issue, since if the facts are incorrectly understood, even a correct analysis can result in an inappropriate decision. Along with the facts, the moral concerns associated with the issue must be identified. They may involve concerns about well-being, rights and liberties, and fairness for those involved. Management also must identify alternatives for addressing the issue, and creativity should be used in generating alternatives.

Once the facts have been discerned, moral concerns identified, and alternatives generated, ethics principles and moral standards are used to analyze the alternatives. Analysis involves reasoning that is logical, systematic, consistent, and reflective. The results of the analysis are judgments about whether the alternatives are consistent with ethics principles and moral standards.

When ethics is directed at decision making, the final stage involves choice and implementation. When ethics is used to understand whether there will be a reaction to a decision, the final stage involves predicting whether objections to a decision are likely and whether nonmarket action can be expected. Finally, experience and reflection provide lessons for refining the methods of analysis and evaluation.

Page reference: 598

Page reference: 599

Difficulty: Moderate

AACSB:

Learning Outcomes: Discuss the role of ethics and social responsibility in

management

 

58)       Describe the relationship between utilitarianism and self-interest.

Answer: Utilitarianism is nearly the antithesis of self-interest because one’s own interests are to be given no more consideration than those of any other person. That is, decisions are to be impartial. The interests considered thus are not just those of the decision maker but those of everyone affected by the action.

Utilitarianism coincides with self-interest only when societal consequences are aligned with private consequences. One role of government is to establish institutions that provide this alignment.

When alignment has been achieved, individuals can evaluate actions in terms of the consequences for themselves rather than having to take into account the consequences for all others affected by an action.

Many of society’s institutions are based on aligning the interests of firms and individuals with the aggregate interests of society. The institutions of private property and markets provide one means of alignment, since a voluntary transaction, such as a supply contract between two firms, makes both the buyer and seller better off. In the case of environmental protection, cap-and-trade systems align the interests of polluters and society.

The law of torts is an institution that assigns the social costs of accidents to individuals and firms, providing incentives to minimize the social costs of accidents and the cost of avoidance.

When markets are competitive and institutions are in place that align self-interest with societal well-being, the maximization of profit by a firm results in the greatest aggregate societal well-being; that is, the greatest difference between societal benefits and societal costs.

Page reference: 601

Page reference: 602

Difficulty: Moderate

AACSB:

Learning Outcomes: Discuss the role of ethics and social responsibility in

management

 

59)       Differentiate between act utilitarianism and rule utilitarianism.

Answer: Utilitarianism may be applied in two forms, act utilitarianism and rule utilitarianism.

Act utilitarianism focuses on the consequences of a particular action in a particular situation and prescribes the action that yields the greatest aggregate well-being for everyone affected by that action. Rule utilitarianism focuses on a general rule of behavior to be followed by all individuals in all similar situations. A moral rule is then the one that does best in terms of its consequences for everyone affected in those similar situations. An action is then moral if it is consistent with the moral rule appropriate for that type of situation.

Rule utilitarianism is viewed by its advocates as providing a set of rules for guiding the behavior of all individuals in society in a mutually advantageous manner. Act utilitarianism focuses on individual actions and does not explain what the overall consequences would be for society if everyone were to act in that manner.

Act utilitarianism also risks slipping into self-interest. Since act utilitarianism focuses on an individual’s action in a specific situation rather than on general rules of behavior, individuals may be tempted to follow their self-interest. That is, the focus of act utilitarianism can place decision makers on a slippery slope leading to evaluating actions based on their self-interest rather than the consequences for all affected.

The response of a rule utilitarian is that utilitarian methods are necessarily applied in an imperfect world in which some facts about the particular situation are missing, information is incomplete, and not all consequences can be foreseen, let alone evaluated. In such a world, it is better to evaluate general rules of behavior to guide individuals than to apply utilitarian methods separately to each action in each situation. Rule utilitarianism encourages individuals to think about whether they would want everyone to follow the same rule of behavior in all similar situations. That is, rule utilitarianism encourages universalism. Rule utilitarianism thus is the preferred form of utilitarianism.

Page reference: 603

Page reference: 604

Difficulty: Moderate

AACSB:

Learning Outcomes: Discuss the role of ethics and social responsibility in

management

 

60)       Write a short note on the philosophical criticisms of utilitarianism.

Answer: One criticism of consequentialist systems is that they do not give adequate attention to intrinsic rights and liberties, which are said to be fundamentally important. A related criticism is that consequentialist systems treat all things alike in their calculus. Thus, aspirations, wants, needs, liberties, and opportunities are relevant only with regard to their consequences.

Another concern with utilitarianism pertains to how duty is assigned when consequences are jointly determined or transgressions are possible. If there is only one person who can take the moral action, the assignment of duty is clear. In some cases, however, there may be several parties who could take the action, or the consequences could be jointly determined.

One resolution is that the duty should be assigned to everyone who could take the action, but that leaves a collective choice problem that could be difficult to resolve. If there are costs associated with taking the action, the utilitarian resolution of the collective choice problem is that the person with the lowest cost of acting should be assigned the duty, as indicated previously. More generally, the assignment of duty can be based on the Calabresi and Melamed principles.

Utilitarianism is also criticized for its focus solely on human well-being. Some critics claim that it should be expanded to include the well-being of other living creatures such as animals and trees and inanimate objects such as rocks and soil as well.

Page reference: 606

Page reference: 607

Difficulty: Moderate

AACSB:

Learning Outcomes: Discuss the role of ethics and social responsibility in management