This question is looking at exponential growth. Some hints as to how we know this is an exponential growth question include the following:
A mention of a percent increase or decrease every period
“Compounded” every certain amount of time
Variable (x, y, z, t, etc.) in the exponent
But the big giveaway is that the format of the given expression neatly matches the exponential growth formula.
A represents your starting value,
r represents your growth per period
t represents the number of periods
Compare this to the following equation:
You can see that 1+r in the compound growth formula and x in the expression provided are in the same relative positions.
So they are equivalent.
We are also told the interest (or growth rate) is 2%. So we can substitute the 2% for r.