Seems that a lot of people had trouble understanding why the problem required us to use exponential growth instead of linear growth. The key here is terminology. According to Investopedia, growth rate is defined as a percentage change of a specific variable within a specific time period. So if we're told that the growth rate is constant then the percentage change between each period is the same i.e., the result of each next period is found by multiplying the value from the previous period by the same number. With linear growth, the
difference between each period is the same BUT the percentage change between each period is NOT the same.
The takeaway:
(1) If you're told that the growth number or the difference between each period is the same, then apply linear growth. In Linear Growth, we
add the same number each time.
(2) If you're told that the growth rate or the percentage change is the same, then apply exponential growth. In Exponential Growth, we
multiply by the same number each time.
See screenshot below - notice that for linear growth the difference between each period is the same but the percentage change actually decreases (this makes sense because as we get larger values but add the same number each time, that same number will become a smaller proportion of the larger value).
Attachment:
Linear vs Exponential Growth.PNG [ 33.3 KiB | Viewed 18009 times ]