American History AIR Practice Test

Laissez-faire economics is characterized by minimal government intervention in the economy. This economic philosophy advocates for the idea that free markets operate best when left to their own devices, without government interference in business and trade. The term originates from the French phrase meaning "let do" or "let pass," emphasizing a hands-off approach from the government regarding economic activities.

Supporters of laissez-faire argue that when individuals are free to pursue their own economic interests, they ultimately contribute to the overall economic health and efficiency of society. Price signals, competition, and the profit motive guide resources to their most productive uses in a laissez-faire system. This approach became especially influential in the late 18th and 19th centuries, aligning with the rise of capitalism and industrialization in Western economies.

In contrast, the other policies mentioned involve varying degrees of government involvement. Keynesian economics promotes active government intervention, especially in times of economic downturns, to stimulate demand. Monetarism primarily focuses on controlling the money supply to manage economic stability but still acknowledges some role for government in regulating the economy. A planned economy, often associated with socialism or communism, relies heavily on government planning and control over economic decisions, which is antithetical to the principles of laissez-faire.