The action that best demonstrates the principle of checks and balances is:
Number one: the president appoints judges to the Supreme Court.
This action illustrates checks and balances because it involves collaboration and oversight between the different branches of government. The president (executive branch) appoints judges, but those appointments must be confirmed by the Senate (legislative branch), ensuring that no single branch has unchecked power.
The other actions mentioned also reflect different aspects of governance but do not exemplify the checks and balances principle in the same direct manner. For instance, state governments creating their own laws are more about federalism, while Congress proposing amendments to the Constitution and the Supreme Court reviewing laws reflect legislative and judicial functions but don't directly display the interactive checks and balances system as clearly as presidential appointments do.