General Education Development (GED) Practice Exam

A command economy is characterized by:

1. A laissez-faire approach by the government

2. A moderate amount of government intervention in the economy

3. Businesses commanding all aspects of the economy

4. The government controlling prices and production

The correct answer is: The government controlling prices and production

A command economy is defined by the significant role of the government in regulating and controlling economic activities. In this system, the government decides what goods and services will be produced, how they will be produced, and for whom they will be produced. This means that prices, production levels, and distribution of resources are managed centrally by government authorities rather than being determined by free market forces. In contrast, the other options highlight different economic systems. A laissez-faire approach emphasizes minimal government intervention, allowing the market to dictate economic outcomes. A moderate amount of government intervention suggests a mixed economy, where both the government and private enterprises play roles. Lastly, the idea of businesses commanding all aspects of the economy points to a market economy, where free enterprise dominates without central planning. These distinctions clarify why the correct characterization of a command economy is indeed government control over prices and production.