The answer is indeed exaggeration and embellishment.
Explanation:
In literature, exaggeration and embellishment are used to make something more than what it is, better or worse. Instead of simply stating that someone has a certain characteristic, we describe that characteristic in such a way that makes it humorous and interesting.
That is what happens in the short story "Rip Van Winkle". Instead of merely saying that Rip is lazy and that his wife nags him, Irving goes to great lengths to describe those traits in a funny way. He has Rip sound like the laziest of men, unable to take care of himself, let alone of his family and his farm. He has Dame Van Winkle sound as if all she does all day long is nag, as if nothing good ever comes out of her mouth. Yet, he keeps those descriptions light, as if he weren't truly criticizing the characters. Let's see some excerpts from the story:
A termagant wife may, therefore, in some respects, be considered a tolerable blessing; and if so, Rip Van Winkle was thrice blessed. [...]
The great error in Rip’s composition was an insuperable aversion to all kinds of profitable labour. [...]
In fact, he declared it was of no use to work on his farm; it was the most pestilent little piece of ground in the whole country; everything about it went wrong, in spite of him. [...]
Rip Van Winkle, however, was one of those happy mortals, of foolish, well-oiled dispositions, who take the world easy, eat white bread or brown, whichever can be got with least thought or trouble, and would rather starve on a penny than work for a pound. If left to himself, he would have whistled life away in perfect contentment; but his wife kept continually dinning in his ears about his idleness, his carelessness, and the ruin he was bringing on his family. Morning, noon, and night, her tongue was incessantly going, and everything he said or did was sure to produce a torrent of household eloquence.
