Explain the economic fallacy in the statement: “If the Jones family would just cut up their credit cards and live within their means, they’d be better off. And if consumers in this nation cut up their credit cards and lived within their means, the

nation would be better off.”

Please provide the best answer for the statement.

This is an example of the fallacy of composition. Cutting up credit cards may be good for the Jones family depending on their circumstances. If they have taken on too much debt and are in financial trouble, then cutting up credit cards would reduce their impulses to spend money. But if all consumers cut up their credit cards this action would reduce consumer spending in the economy because there would be fewer transactions and it would make the economy less efficient. Economic growth would decline because of the reduced consumer spending.