What is the basic problem with the monetary assumption when there has been significant inflation?

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Expert Solution

The basic problem with the monetary assumption when there has been significant inflation is that the monetary assumption assumes a stable dollar in terms of purchasing power. When there has been inflation, the dollar has not been stable in terms of purchasing power, and therefore, dollars are being compared that are not of the same purchasing power.

Monetary assumption fails in significant inflation, assuming stable dollar purchasing power, leading to incomparable values.

Junaid answered 3 months ago

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