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The good-enough? test is inadequate for finding the square roots of very small numbers because it uses a tolerance of 0.001, therefore any number small enough, around 0.001 (or smaller) would have a large error in it's square root.
Example - If we do (sqrt-iter 1.0 0.005), we get 0.0364, whereas the actual sqrt is 0.0223.
In the case of large numbers, there is data lost because of limited precision. What this means is, take a big number such as 12312412452145123213123, now store this variable as x. Now, let set y as x/2, y would equal 6.15..*10^21 and y*2 would NOT be equal to x, because the last few trailing digit's information would be lost. Now, seeing how this data is lost, our sqrt-iter would not work for very large numbers.