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I have to admit that an erratic temperature gauge because of a faulty compensation board (found on '87-on 240's) could be the problem.
But before going to the trouble of pulling the instrument panel and either replacing the compensation board or substituting a jumper (the better solution, for future accuracy), let me first suggest how to confirm whether this is the problem.
There is a widely available, hand-held infra-red (i.e., remote reading)thermometer that is very accurate [I've compared it to my multithousands of dollars instruments in my biology laboratory, and it's close enough]. Made by RayTek, and sold by IPD, Griot's garage, etc. for about $80 to 90, you can aim it at the side tanks of the radiator, the thermostat housing, etc., to instantly determine coolant temperature to within a half-degree. Sure it's a bit costly, but you'll find countless other uses for it, not only in in your garage but elsewhere -- in the kitchen (tell your wife you bought it for her :-), around the house and garden (get air temperature, soil temperature), etc. It's a great diagnostic tool.
Anyway, you can confirm easily if it's an inaccurate temperature gauge or a cooling system problem.
Good luck.
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