when the price level falls, it reduces inflation, (since inflation is basically when price level is high)

Great question. What I mean here is to consider a country that is poorly managing its economy, unstable politically and aiming to attract foreign depositors with high interest rates. It could be suffering from very high inflation as well and not necessarily attract the deposits they are hoping to with an increased interest rate.

My best guess is that it counts in a country’s money supply if it is issued by the government. Bitcoin, for example, would not. It is not overseen by any country’s government so would not impact their money supply. It is also out of their control to alter the supply of it, unless they attempt to restrict its use.

This video is made for new students to Economics. In any courses on Economics you would start with these basics and later learn about more current and advanced monetary policy.