Step 1: Understanding the Concept:
The area of a circle depends on its radius $r$ according to the geometric formula $A = \pi r^2$.
Step 2: Key Formula or Approach:
Length of rectangle $L = 16\,\text{cm}$.
Diameter of the circle $d = L - 2 = 16 - 2 = 14\,\text{cm}$.
Radius of the circle $r = \frac{d}{2} = \frac{14}{2} = 7\,\text{cm}$.
Step 3: Detailed Explanation:
Area of the circle:
\[A = \pi r^2 = \frac{22}{7} \times 7^2 = \frac{22}{7} \times 49 = 22 \times 7 = 154\,\text{cm}^2\]
Step 4: Final Answer:
Therefore, the area of the circle is 154 sq. cm.