The four zones of economic discomfort are given in Figure 3. ii) See Figure 4.

Starting at point 2, scal policy is shown as only horizontal movements. This means that the economy can reach either point 3 (internal balance) or point 4 (external balance) in the gure, but not both internal and external balances. Only a devaluation of the currency accompanied with an increase in scal ease, namely increasing government expenditures or decreasing taxes, will move the economy to both internal and external balances at point 1 in the gure.