We don't have the full test, so maybe the teacher had a preface saying "In the context of book XYZ...". That is what I do when I create flashcards for myself. I specify what knowledge I am testing. We may also assume it was implicit for the students.
I could also imagine that forcing the student to make one choice is a feature, not bug. For example this decision may teach the student that (1) not everything is binary and a single book has no absolute truth, (2) to move forward, you need to make a choice.
Regarding the second part:
> That, to me, is testing information without knowledge.
Memorization vs. Understanding is a false dichotomy. Both are required for proper learning. See https://www.coursera.org/learn/learning-how-to-learn.