Virtuous circle
Economic growth can be seen as a virtuous circle. It might start with an exogenous, or outside factor such as technological innovation. As people get familiar with the new technology, there could be learning curve effects and economies of scale. This could lead to reduced costs and improved production efficiencies. In a competitive market structure, this will probably result in lower average prices. As prices decrease, consumption could increase and aggregate output also. Increased levels of output lead to more learning and scale effects and a new cycle starts.
Vicious circle
Hyperinflation is a spiral of inflationwhich causes even higher inflation. The initial exogenous event might be a sudden large increase in international interest rates or a massive increase in government debtdue to excessive spendings. Whatever the cause, the government could pay down some of its debt by printing more money (called monetizing the debt). This increase in the money supply could increase the level of inflation. In an inflationary environment, people tend to spend their money quickly because they expect its value to decrease further in the future. They convert their financial assets into physical assets while their money still has some purchasing power. Often they will purchase on credit. Eventually, the currency loses all of its value. Because of this, the level of savings in the country is very low and the government could have problems refinancing its debt. Its solution could be to print still more money starting another iteration of the vicious cycle.
