If you have taken ECO100, you probably saw the money circulation map in the later chapter. Basically there are many ways for money to go around, such as Business to Consumer, Business to Business, Business to Government, Business to Bank, Consumer to Government, and all goes back to Business in one way or the other. Notice that Business and Consumer acquire capital by borrowing money from Bank. If there is less lending from Bank, Business and Consumer will have less money to circulate, so they decrease their own money circulation to the other. (otherwise they go bankrupt) This causes decrease in money supply because there would alot of unused money to spend or lend to the others. Typically government raise interest rate to discourage lending and reduce it to encourage lending, affecting money supply.