doctrine that interference of government in business and economic affairs should be minimal. Adam Smith's The Wealth of Nations (1776) described laissez-faire economics in terms of an "invisible hand" that would provide for the maximum good for all, if businessmen were free to pursue profitable opportunities as they saw them. The growth of industry in England in the early 19th century and American industrial growth in the late 19th century both occurred in a laissez-faire capitalist environment. The laissez-faire period ended by the beginning of the 20th century, when large monopolies were broken up and government regulation of business became the norm. The Great Depression of the 1930s saw the birth of Keynesian economics, an influential approach advocating government intervention in economic affairs. The movement toward deregulation of business in the United States that began in the 1970s and 80s is to some extent a return to the laissez-faire philosophy. Laissez-faire is French for "allow to do."

analysis of a nation's economy as a whole, using such aggregate data as price levels, unemployment, inflation, and industrial production.

in macroeconomics, the total amount of goods and services supplied to the market at alternative price levels in a given period of time; also called total output. The central concept in supply-side economics, it corresponds with aggregate demand, defined as the total amount of goods and services demanded in the economy at alternative income levels in a given period, including both consumer and producers' goods; aggregate demand is also called total spending. The aggregate supply curve describes the relationship between price levels and the quantity of output that firms are willing to provide.

economist who believes that the money supply is the key to the ups and downs in the economy. Monetarists such as Milton Friedman think that the money supply has far more impact on the economy's future course than, say, the level of federal spending-a factor on which keynesian economics puts great stress. Monetarists advocate slow but steady growth in the money supply.

theory of economics contending that drastic reductions in tax rates will stimulate productive investment by corporations and wealthy individuals to the benefit of the entire society. Championed in the late 1970s by Professor Arthur Laffer (see laffer curve and others, the theory held that marginal tax rates had become so high (primarily as a result of big government) that major new private spending on plant, equipment, and other "engines of growth" was discouraged. Therefore, reducing the size of government, and hence its claim on earned income, would fuel economic expansion.

Supporters of the supply-side theory claimed they were vindicated in the first years of the administration of President Ronald W. Reagan, when marginal tax rates were cut just prior to a sustained economic recovery. However, members of the opposing keynesian economics school maintained that the recovery was a classic example of "demand-side" economics-growth was stimulated not by increasing the supply of goods, but by increasing consumer demand as disposable incomes rose. Also clashing with the supply-side theory were monetarist economists, who contended that the most effective way of regulating aggregate demand is for the Federal Reserve to control growth in the money supply.

federal taxation and spending policies designed to level out the business cycle and achieve full employment, price stability, and sustained growth in the economy. Fiscal policy basically follows the economic theory of the 20th-century English economist John Maynard Keynes that insufficient demand causes unemployment and excessive demand leads to inflation. It aims to stimulate demand and output in periods of business decline by increasing government purchases and cutting taxes, thereby releasing more disposable income into the spending stream, and to correct overexpansion by reversing the process. Working to balance these deliberate fiscal measures are the so-called built-in stabilizers, such as the progressive income tax and unemployment benefits, which automatically respond countercyclically. Fiscal policy is administered independently of monetary policy, by which the Federal Reserve Board attempts to regulate economic activity by controlling the money supply. The goals of fiscal and monetary policy are the same, but Keynesians and Monetarists disagree as to which of the two approaches works best. At the basis of their differences are questions dealing with the velocity (turnover) of money and the effect of changes in the money supply on the equilibrium rate of interest (the rate at which money demand equals money supply).

economist who believes that the money supply is the key to the ups and downs in the economy. Monetarists such as Milton Friedman think that the money supply has far more impact on the economy's future course than, say, the level of federal spending-a factor on which keynesian economics puts great stress. Monetarists advocate slow but steady growth in the money supply.

economic theory advocating drastic tax cuts and tax credits to encourage productive investments by corporations and achieve economic targets for growth in national output and employment. Supply side economists argue the importance of lowering marginal tax rates, which they say stimulates aggregate supply encouraging suppliers to produce more, and individuals to earn more, as opposed to stimulating aggregate demand for goods and services by consumers and businesses. In other words, people will work more because they can produce more. Supply siders argue that the economic stimulus of tax cuts and tax credits will offset revenue losses from cuts in marginal tax rates. In the early 1980s, supply side economics was a politically attractive solution to the stagflation (double-digit inflation accompanied by stagnant growth) characteristic of the late 1970s. It is counter to the keynesian economics school; supply siders reject the Keynesian multiplier argument that relates tax cuts to increases in aggregate demand.

in keynesian economics, the desire by investors to hold their money in liquid assets, such as checking accounts, rather than nonliquid assets (stocks, bonds, real estate). This preference is explained by: (1) a transactional motivation, or the desire to keep money available for spending as needed; (2) a precautionary motivation, characterized by the reluctance to keep money tied up in assets not readily convertible to cash; and (3) the speculative motive, a belief that interest rates may be going up in the future. According to the Keynesian theory, interest is the payment to investors to persuade them to give up their liquidity. Longer-term investments, therefore, would command higher rates over shorter-term investments. This premium is known as the liquidity premium. Contrast with expectations theory.

series of equal periodic payments or receipts. Examples of an annuity are semiannual interest receipts from a bond investment and cash dividends from a preferred stock. There are two types of an annuity: (1) Ordinary annuity, where payments or receipts occur at the end of the period; (2) Annuity due, where payments or receipts are made at the beginning of the period.

buildup of policy cash value, as distinguished from the death benefit. A policyholder has a choice between surrendering the policy for its cash surrender value or keeping it in force for its death benefit. The rates of return on cash value policies, such as whole life insurance, universal life, or variable life, depend on schedules in the insurance contract or, in some types of policies, on prevailing interest rates or the performance of an investment portfolio.