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49
CHAPTER 4: CONSTITUTIONAL AUTHORITY TO REGULATE BUSINESS
Chapter 4
Constitutional Authority to Regulate
Business
TRUE/FALSE QUESTIONS
1.
A federal form of government is one in which sovereign power is

vested entirely in a central governing authority.
ANSWER: F
NAT: AACSB Analytic
2.
PAGE:
103
AICPA Legal
TYPE:
PAGE:
103
AICPA Legal
TYPE:
The courts can hold acts of the legislative and executive branches
unconstitutional.
ANSWER: T
NAT: AACSB Analytic
5.
Under the Constitution, the judicial branch enforces the laws.

ANSWER: F
NAT: AACSB Analytic
4.
103
TYPE:
AICPA Critical Thinking
The Constitution provides for three branches of government.

ANSWER: T
NAT: AACSB Analytic
3.
PAGE:
PAGE:
103
AICPA Legal
TYPE:
The state governments retain all powers not specifically delegated to

the federal government.
ANSWER: T
NAT: AACSB Analytic
PAGE:
103
AICPA Legal
TYPE:
50
UNIT ONE: THE FOUNDATIONS
51
6.
The federal government cannot regulate commerce within a state,

even if the commerce concerns more than one state.
ANSWER: F
NAT: AACSB Analytic
7.
PAGE:
107
TYPE:
PAGE:
107
TYPE:
PAGE:
107
AICPA Legal
TYPE:
PAGE:
108
AICPA Legal
TYPE:
Whether the federal government has preempted a certain area is

always clear.
ANSWER: F
NAT: AACSB Analytic
13.
Under the supremacy clause, when there is a direct conflict between

a federal and a state law, both laws are given equal effect.
ANSWER: F
NAT: AACSB Analytic
12.
106
TYPE:
Local governments, including cities, can exercise police powers.

ANSWER: T
NAT: AACSB Analytic
11.
PAGE:
When state regulations impinge on interstate commerce, commerce

must yield to the regulations.
ANSWER: F
NAT: AACSB Analytic
10.
State police powers relate solely to criminal law enforcement.

ANSWER: F
NAT: AACSB Analytic
9.
106
TYPE:
Congress may regulate any activity that substantially affects

interstate commerce.
ANSWER: T
NAT: AACSB Analytic
8.
PAGE:
PAGE:
108
TYPE:
Some constitutional protections apply to business entities.
52
ANSWER: T
PAGE:
NAT: AACSB Reflective
109
TYPE:
53
14.
The Bill of Rights protects individuals against various types of

interference by the federal government.
ANSWER: T
NAT: AACSB Analytic
15.
PAGE:
PAGE:
PAGE:
PAGE:
109
TYPE:
109
AICPA Legal
TYPE:
111
TYPE:
111
AICPA Legal
TYPE:
The First Amendment does not protect commercial speech as

extensively as noncommercial speech.
ANSWER: T
PAGE:
21.
TYPE:
Expression of all kinds is subject to reasonable restrictions.

ANSWER: T
NAT: AACSB Analytic
20.
109
AICPA Legal
The First Amendment protects symbolic speech.

ANSWER: T
PAGE:
19.
The Bill of Rights protects individuals against various types of

interference by the states.
ANSWER: T
NAT: AACSB Analytic
18.
TYPE:
The Bill of Rights confers absolute rights, not subject to interpretation

by the United States Supreme Court.
ANSWER: F
NAT: AACSB Analytic
17.
109
AICPA Legal
The federal government retains all powers not specifically delegated

to the states.
ANSWER: F
NAT: AACSB Analytic
16.
PAGE:
112
TYPE:
A restriction on commercial speech that implements a substantial

government interest may be valid.
54
ANSWER: T
NAT: AACSB Analytic
22.
PAGE:
PAGE:
116
AICPA Legal
TYPE:
116
TYPE:
116
TYPE:
Procedural due process requires that any taking of a persons life,

liberty, or property by government must be made fairly.
ANSWER: T
NAT: AACSB Analytic
28.
A state law that places a significant burden on religion is

unconstitutional.
ANSWER: T
PAGE:
27.
114
TYPE:
The First Amendment requires a complete separation of church and

state.
ANSWER: F
PAGE:
26.
A federal law that promotes a religion is unconstitutional.

ANSWER: T
NAT: AACSB Analytic
25.
112
TYPE:
The First Amendment protects obscene speech.

ANSWER: F
PAGE:
24.
Political speech that would otherwise be protected by the First

Amendment is prohibited if its source is a corporation.
ANSWER: F
PAGE:
23.
112
TYPE:
PAGE:
121
AICPA Legal
TYPE:
A law that restricts a fundamental right does not violate substantive

due process if it promotes a compelling state interest.
ANSWER:
PAGE:
121
TYPE:
55
NAT: AACSB Analytic

29.
AICPA Legal
A law that restricts a fundamental right violates substantive due

process regardless of the type of state interest that the law
promotes.
ANSWER: F
NAT: AACSB Analytic
PAGE:
121
AICPA Legal
TYPE:
56
30.
A law that distinguishes between or among individuals violates the

equal protection clause.
ANSWER: F
NAT: AACSB Analytic
31.
PAGE:
PAGE:
TYPE:
122
AICPA Legal
TYPE:
123
TYPE:
The Constitution specifically guarantees a right to privacy.

ANSWER: F
PAGE:
35.
122
AICPA Legal
State laws often significantly protect individuals privacy rights.

ANSWER: T
PAGE:
34.
Equal protection means that the government must treat similarly

situated individuals in a similar manner.
ANSWER: T
NAT: AACSB Analytic
33.
122
TYPE:
The terms procedural due process and equal protection mean the
same thing.
ANSWER: F
NAT: AACSB Analytic
32.
PAGE:
125
TYPE:
Any person can ask for copies of any information on that person
contained in federal government files.
ANSWER: T
NAT: AACSB Analytic
PAGE:
126
AICPA Legal
TYPE:
MULTIPLE-CHOICE QUESTIONS
1.
Under the Constitution

a.
b.
neither the national government nor the states have sovereign

power.
the national government and the states share sovereign power.
57
c.
d.
the national government exercises all sovereign power.

the states exercise all sovereign power.
ANSWER: B
NAT: AACSB Analytic
PAGE:
103
AICPA Legal
TYPE:
58
2.
Under the Constitution, the legislative branch of the government

a.
b.
c.
d.
administers the laws.

enforces the laws.
interprets the laws.
makes the laws.
ANSWER: D
NAT: AACSB Analytic
3.
c.
d.
TYPE:
Congress writes checks and the president balances the budget.

each branch of government has some power to limit the actions
of the other branches.
each branch of government may exercise the authority of the
other branches.
the president checks the courts, which balance the laws.
ANSWER: B
NAT: AACSB Analytic
PAGE:
103
AICPA Legal
TYPE:
Household Furnishings, Inc., distributes its merchandise on an interstate basis. Under the commerce clause, Congress has the power to
regulate
a.
b.
c.
d.
any commercial activity in the United States.

only activities that are in intrastate commerce.
only activities that are in local commerce.
only activities that are not in commerce.
ANSWER: A
NAT: AACSB Analytic
5.
103
AICPA Legal
The Constitution sets out the authority and the limits of the branches
of the government. The term checks and balances means that
a.
b.
4.
PAGE:
PAGE:
103
AICPA Legal
TYPE:
Ohio enacts a transportation statute that impinges on interstate

commerce. This statute will be
a.
b.
c.
balanced in terms of Ohios interest in regulating a certain

matter against the burden placed on interstate commerce.
balanced in terms of the burden on Ohio against the merit and
purpose of interstate commerce.
struck down.
59
d.
upheld.
ANSWER: A
PAGE:
6.
police powers.
taxing powers.
spending powers.
supreme powers.
ANSWER: A
PAGE:
107
AICPA Legal
TYPE:
Tom files a suit against the state of Utah, claiming that a Utah state
law violates the commerce clause. The court will agree if the statute
a.
b.
c.
d.
imposes a substantial burden on interstate commerce.

promotes the public order, health, safety, morals, or general
welfare.
regulates activities within Utahs borders.
regulates private activities.
ANSWER: A
PAGE:
8.
TYPE:
Wisconsin, like other states, may regulate private activities to protect

or promote the public order, health, safety, and general welfare
under its
a.
b.
c.
d.
7.
107
AICPA Legal
107
TYPE:
+
AICPA Decision Modeling
A New Hampshire state law that directly conflicts with a federal law is
invalid under
a.
b.
c.
d.
the
the
the
the
commerce clause.
equal protection clause.
establishment clause.
supremacy clause.
ANSWER: D
PAGE:
108
AICPA Legal
TYPE:
60
9.
When there is a direct conflict between a decision by a federal

Environmental Protection Agency (EPA) administrator on a matter
that comes within the EPAs jurisdiction and a Hawaii state law
a.
b.
c.
d.
Hawaiis law takes precedence.

both the decision and the law are invalid.
both the decision and the law apply concurrently.
the EPAs decision takes precedence.
ANSWER: D
PAGE:
108
AICPA Legal
TYPE:
61
10.
If there is a direct conflict between a federal law and an Alaska state

law
a.
b.
c.
d.
Alaskas law takes precedence.

both laws are invalid.
both laws govern concurrently.
the federal law takes precedence.
ANSWER: D
PAGE:
11.
religion only.
speech only.
the press only.
religion, speech, and the press.
ANSWER: D
PAGE:
109
AICPA Legal
TYPE:
Dian, a U.S. citizen, is the owner of Eagle, Inc. The Bill of Rights
embodies a series of protections for Dian against various types of
interference by
a.
b.
c.
d.
business entities only.

private individuals only.
the government only.
business entities, private individuals, and the government.
ANSWER: C
PAGE:
13.
TYPE:
Mike, an advocate of a certain religion, publishes an article in New

Times magazine insisting that Congress base all federal law on his
religions principles. The First Amendment guarantees Mikes freedom
of
a.
b.
c.
d.
12.
108
AICPA Legal
109
AICPA Legal
TYPE:
The police obtain a search warrant and search Daves apartment.

After yelling obscenities at the officers, Dave confesses to a crime
and implicates his friends. The Constitution protects against
a.
b.
c.
obscene speech only.

implication of others only.
unreasonable searches only.
62
d.
obscene speech, implication of others, and unreasonable
searches.
ANSWER: C
PAGE:
14.
neither the state government nor the federal government.

the federal government only.
the state government and the federal government.
the state government only.
ANSWER: B
PAGE:
110
TYPE:
Fred, the president of Good Retail Corporation, claims that certain actions by the federal government and the state of Hawaii infringe on
rights guaranteed by the Bill of Rights. Most of these rights limit
a.
b.
c.
d.
neither the state government nor the federal government.

the federal government only.
the state government and the federal government.
the state government only.
ANSWER: C
PAGE:
16.
TYPE:
Gabe, the president of Hot Sales Company, claims that certain

actions by the federal government and by the state of Idaho infringe
on rights guaranteed by the Bill of Rights. All of these rights limit
a.
b.
c.
d.
15.
109
AICPA Legal
110
TYPE:
An Alabama state statute prohibits business entities from using bill

inserts to express controversial views. A court would likely hold this
law to be
a.
b.
c.
d.
an unconstitutional restriction of speech.

constitutional under the First Amendment.
justified by the need to protect individual rights.
necessary to protect state interests.
ANSWER: A
PAGE:
112
AICPA Legal
TYPE:
63
17.
Carbon Energy Corporation regularly expresses opinions on political

issues. Under the First Amendment, corporate political speech is
given
a.
b.
c.
d.
little protection.
no protection.
significant protection.
total protection.
ANSWER: C
PAGE:
18.

ANSWER: A
PAGE:
112
TYPE:
A Minnesota state statute restricts certain kinds of advertising to

protect consumers from being misled. A court would likely hold this
statute to be
a.
b.
c.
d.

ANSWER: B
PAGE:
20.
Indiana enacts a statute that bans the distribution of anonymous

political leaflets. A court would likely hold this to be
a.
b.
c.
d.
19.
112
TYPE:
112
TYPE:
=
California enacts a statute to ban advertising in bad taste. This

statute would likely be held by a court to be
a.
b.
c.
d.

64
ANSWER: A
PAGE:
21.
112
TYPE:
+
Congress enacts the Tight Money Act (TMA) to prohibit major business entities from making political contributions that individuals can
make. A court would likely hold the TMA to be
a.
b.
c.
d.

necessary to protect national interests.
ANSWER: A
PAGE:
112
TYPE:
+
65
22.
Direct Mail Sales Corporation regularly advertises its products. Under

the First Amendment, these ads and other commercial speech are
given
a.
b.
c.
d.
less protection than noncommercial speech.

more protection than noncommercial speech.
no protection.
the same protection as noncommercial speech.
ANSWER: A
PAGE:
23.

necessary to protect national interests.
ANSWER: A
PAGE:
112
AICPA Legal
TYPE:
Congress enacts the Act to Restrict Commercial Speech (ARCS). The

ARCS will be considered valid
a.
b.
c.
d.
if it directly advances a substantial government interest but

goes no further than necessary.
if it directly advances a substantial government interest regardless of how far it goes.
under any circumstances.
under no circumstances.
ANSWER: A
PAGE:
25.
Cordial Drinks, Inc., markets alcoholic beverages. A federal regulation

bans the disclosure of the alcohol content of liquor on Cordials labels
and those of other marketers. A court would likely hold this regulation
to be
a.
b.
c.
d.
24.
112
TYPE:
112
AICPA Legal
TYPE:
Gail publishes an article in Hear This! Magazine that harms

Imogenes good reputation. The First Amendment protects Gail and
other individuals who engage in speech that harms others good
reputations
66
a.
b.
c.
d.
all of the time.

none of the time.
only if it is commercial speech.
only if it is political speech.
ANSWER: B
PAGE:
114
TYPE:
67
26.
Xtreme Publications, Inc., disseminates obscene materials. Under numerous state and federal statutes, this is
a.
b.
c
d.
a
a
a
a
crime.
privilege.
right under the commerce clause.
right under the First Amendment.
ANSWER: A
NAT: AACSB Analytic
27.
PAGE:
all of the time.

none of the time.
only if it is commercial speech.
only if it is political speech.
ANSWER: B
PAGE:
114
AICPA Legal
TYPE:
Oklahoma enacts a law requiring all businesses in the state to donate

10 percent of their profits to Protestant churches that provide certain
services to persons whose income is below the poverty level.
PriceLess Stores files a suit to block the laws enforcement. The court
would likely hold that this law violates
a.
b.
c.
d.
no clause in the U.S. Constitution.

the establishment clause.
the full faith and credit clause.
the supremacy clause.
ANSWER: B
PAGE:
29.
TYPE:
The First Amendment protects Ira and other individuals who engage
in speech that violates state criminal laws
a.
b.
c.
d.
28.
114
AICPA Legal
116
TYPE:
N
The requirement that no person be deprived of life, liberty, or

property without due process of law is found in
a.
b.
c.
d.
the
the
the
the
First Amendment only.

Fifth Amendment only.
Fourteenth Amendment only.
Fifth Amendment and the Fourteenth Amendment.
68
ANSWER: D
NAT: AACSB Analytic
30.
PAGE:
121
AICPA Legal
TYPE:
Owen claims that a Pennsylvania state statute infringes on his

substantive due process rights. This claim focuses on
a.
b.
c.
d.
procedures used to make decisions to take life, liberty, or

property.
the content of the statute.
the similarity of the treatment of similarly situated individuals.
the steps to be taken to protect Owens privacy.
ANSWER: B
PAGE:
121
AICPA Legal
TYPE:
Mary claims that a Nebraska state statute infringes on her

procedural due process rights. This claim focuses on
a.
b.
c.
d.
procedures used in making decisions to take life, liberty, or

property.
the content of the statute.
the similarity of the treatment of similarly situated individuals.
the steps to be taken to protect Marys privacy.
ANSWER: A
PAGE:
33.
equal protection.
procedural due process.
substantive due process.
none of the above.
ANSWER: C
PAGE:
32.
TYPE:
A law that limits the liberty of all persons to do something may

violate
a.
b.
c.
d.
31.
121
AICPA Legal
121
AICPA Legal
TYPE:
A Rhode Island state statute imposes a prison term, without a trial,

on all street vendors who operate in certain areas. A court would
likely hold this statute to be
69
a.
b.
c.
d.
constitutional under the due process clause.

constitutional under the equal protection clause.
unconstitutional under the due process clause.
unconstitutional under the equal protection clause.
ANSWER: C
PAGE:
121
AICPA Legal
TYPE:
70
34.
Colorado enacts a statute that limits the liberty of all persons,

including corporations, to broadcast annoying radio commercials.
This may violate
a.
b.
c.
d.
equal protection.
procedural due process.
substantive due process.
the right to privacy.
ANSWER: C
PAGE:
35.
121
TYPE:
AICPA Risk Analysis
A Metro City ordinance allows only a few street vendors to operate in

certain areas, for the purpose of reducing traffic. A court would likely
hold this ordinance to be
a.
b.
c.
d.
constitutional under the due process clause.

constitutional under the equal protection clause.
unconstitutional under the due process clause.
unconstitutional under the equal protection clause.
ANSWER: B
PAGE:
122
TYPE:
ESSAY QUESTIONS
1.
Jen operates Jens Fruits & Vegetables, a small market stocked

entirely with produce grown on her adjacent farm. Under what clause
of the Constitution can the federal government regulate Jens
activities? What is Jens best argument against federal regulation of
her farm and business?
ANSWER: Under the commerce clause, according to earlier
decisions by the United States Supreme Court, Congress has the
power to regulate any activityinterstate or intrastatethat affects
interstate commerce. Thus, under that clause, it could be argued that
a farmers growing and selling of produce are subject to federal
regulation because these activities affect interstate commerce. The
farmer-vendors best argument against federal regulation of her farm
and business is that in her case, these activities and their effects are
purely local. Because these activities are economic in nature and
hence, despite their local character, have an effect on interstate
71
commerce, it is unlikely that a court would accept this argument,

however.
PAGES:
103106
2.
TYPE:
=
The Alabama Consumer Protection Agency (ACPA) investigates the

marketing practices of Beta Sales, Inc. The ACPA serves a subpoena
on Beta, ordering the firm to provide certain business records,
including its marketing agreements with other companies. Beta
refuses to comply with the subpoena. On what is Beta most likely
basing its refusal? Is a court likely to support Betas position? Why or
why not?
ANSWER: Beta is most likely refusing to comply with the subpoena
on the ground that it has a constitutional privilege against selfincrimination. A corporation cannot invoke the U.S. Constitutions
privilege against self-incrimination as a basis for refusing to produce
documents in response to a subpoena, however, which means that a
court is most likely to rule against Beta. A corporation can be
compelled to comply with such a subpoena, because a corporation is
a legal entity and not a natural person. The Fifth Amendments
guarantee extends only to natural persons. Also, an employee of the
corporation in charge of the corporate records cannot rely on his or
her personal privilege against self-incrimination as a basis for
refusing to produce the records.
PAGES:
112114
TYPE:
N

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49

CHAPTER 4: CONSTITUTIONAL AUTHORITY TO REGULATE BUSINESS

A federal form of government is one in which sovereign power is

Under the Constitution, the judicial branch enforces the laws.

The Constitution provides for three branches of government.

The state governments retain all powers not specifically delegated to

UNIT ONE: THE FOUNDATIONS

CHAPTER 4: CONSTITUTIONAL AUTHORITY TO REGULATE BUSINESS

The federal government cannot regulate commerce within a state,

Whether the federal government has preempted a certain area is

Under the supremacy clause, when there is a direct conflict between

Local governments, including cities, can exercise police powers.

When state regulations impinge on interstate commerce, commerce

State police powers relate solely to criminal law enforcement.

Congress may regulate any activity that substantially affects

Some constitutional protections apply to business entities.

UNIT ONE: THE FOUNDATIONS

CHAPTER 4: CONSTITUTIONAL AUTHORITY TO REGULATE BUSINESS

The Bill of Rights protects individuals against various types of

The First Amendment does not protect commercial speech as

Expression of all kinds is subject to reasonable restrictions.

The First Amendment protects symbolic speech.

The Bill of Rights protects individuals against various types of

The Bill of Rights confers absolute rights, not subject to interpretation

The federal government retains all powers not specifically delegated

A restriction on commercial speech that implements a substantial

UNIT ONE: THE FOUNDATIONS

Procedural due process requires that any taking of a persons life,

A state law that places a significant burden on religion is

The First Amendment requires a complete separation of church and

A federal law that promotes a religion is unconstitutional.

The First Amendment protects obscene speech.

Political speech that would otherwise be protected by the First

A law that restricts a fundamental right does not violate substantive

CHAPTER 4: CONSTITUTIONAL AUTHORITY TO REGULATE BUSINESS

NAT: AACSB Analytic

A law that restricts a fundamental right violates substantive due

UNIT ONE: THE FOUNDATIONS

A law that distinguishes between or among individuals violates the

The Constitution specifically guarantees a right to privacy.

State laws often significantly protect individuals privacy rights.

Equal protection means that the government must treat similarly

Under the Constitution

neither the national government nor the states have sovereign

CHAPTER 4: CONSTITUTIONAL AUTHORITY TO REGULATE BUSINESS

the national government exercises all sovereign power.

UNIT ONE: THE FOUNDATIONS

Under the Constitution, the legislative branch of the government

administers the laws.

Congress writes checks and the president balances the budget.

any commercial activity in the United States.

Ohio enacts a transportation statute that impinges on interstate

balanced in terms of Ohios interest in regulating a certain

CHAPTER 4: CONSTITUTIONAL AUTHORITY TO REGULATE BUSINESS

imposes a substantial burden on interstate commerce.

Wisconsin, like other states, may regulate private activities to protect

UNIT ONE: THE FOUNDATIONS

When there is a direct conflict between a decision by a federal

Hawaiis law takes precedence.

CHAPTER 4: CONSTITUTIONAL AUTHORITY TO REGULATE BUSINESS

If there is a direct conflict between a federal law and an Alaska state

Alaskas law takes precedence.

business entities only.

Mike, an advocate of a certain religion, publishes an article in New