When the interest rate increases, I learned that money supply decreases because people put their currency back in banks in forms of assets and tend to save more, spend less.
However, money supply includes deposits as well as currency. So what I'm really curious about is whether a rise in interest rate actually decreases money supply.
Doesn't a rise in interest rate just decrease the ratio of currency in the economy and increase the ratio of deposits in the bank, the sum (deposits + currency) remaining the same? So shouldn't money supply technically stay the same?