Final answer:
The paradox of thrift is an economic theory and is an example of the fallacy of composition as it mistakenly extends individual behavior (thriftiness) to the economy as a whole, which can have unintended negative consequences.option B is correct answer.
Step-by-step explanation:
The paradox of thrift is an economic theory which suggests that when everyone tries to save more money during times of economic recession, aggregate demand will fall, leading to a decrease in economic growth and an increase in the overall level of savings not being reached. Essentially, what is individually rational (saving more) is collectively irrational because it leads to a decrease in consumption and investment, reducing overall savings and harming the economy.
Option (B) 'The fallacy of composition' is the correct answer to the question: The 'paradox of thrift' is an example of the fallacy of composition because it highlights a situation where what is true for an individual is not necessarily true for the whole. This fallacy occurs when one assumes that what is true for one part will also be true for the whole.
Positive and negative feedback are concepts mostly used in natural sciences, such as biology, to describe how systems regulate themselves. The use of negative feedback mechanisms generally means to stabilize the system and bring it back toward equilibrium, while positive feedback leads to a further increase in the change of the system, moving it away from equilibrium. In economics, the paradox of thrift does not fit into the categories of positive or negative feedback as defined in natural sciences, because it does not relate to the regulation toward or away from a specific set point or equilibrium.