Well, even if she was joking or trying to get his attention because he was "out of line", she still should not have said this for the following reasons:
1) The child is seven years old, not 16, and hence it is highly unlikely that he is able to rationalize the way an adult would and he is probably going to take comments like that very literally.
2) Other children within his age group were present, chances are they overheard the remark and may have been frightened themselves.
Even if she was trying to correct him, she still should have known better than to make a highly inaproppriate remark to a seven-year-old.
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"I Would rather be exposed to the inconveniences attending too much liberty than those attending too small a degree of it."
-Thomas Jefferson
Adopted mother to a cat named Charlotte, and grandmother to 3 kittens.