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Thursday, 5 April 2012

Stable measuring unit assumption based on a fallacy

Stable measuring unit assumption based on a fallacy

Under the stable measuring unit assumption it is assumed that changes in the purchasing power of money are not sufficiently important to require financial capital maintenance in units of constant purchasing power during low inflation and deflation.

In practice the stable measuring unit assumption means that the real value of money is assumed to be perfectly stable during low inflation and deflation.

The stable measuring unit assumption is an assumption made in economics and accounting. The fact is that the real value of money is never perfectly stable under inflation and deflation.

The stable measuring unit assumption is thus based on a fallacy, namely the fallacy that money is stable in real value during low inflation and deflation.

Nicolaas Smith

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