Interest charges accrue on top of existing debt;saving leads to substantial growth savings over the long run.This is the:
A) vesting effect.
B) teaser effect.
C) interest rate effect.
D) compounding effect.

Question

Quizplus · Accepted Answer

The statement refers to the concept of compounding effect, in which interest charges are added to the existing debt, leading to exponential growth of the debt over time. On the other hand, saving also leads to the compounding effect, in which the interest earned on savings is reinvested, generating more interest over time. Therefore, saving can result in substantial growth of savings over the long run.

Interest Charges Accrue on Top of Existing Debt;saving Leads to Substantial