As the interest rate increases, what happens to the present value of a future payment? Explain why changes in the interest rate will lead to changes in the quantity of loanable funds demanded and investment spending

An increase in the interest rate reduces the present value of future payments. Investment spending is the purchasing of capital goods that are expected to raise future revenues. When interest rates rise, the present value of these future revenues decline so that fewer capital expenditures are likely to generate enough revenue to justify their price. Consequently firms will want to buy fewer capital goods and will demand a lower quantity of loanable funds.