When an investor earns at 3%, the investor's purchasing power decreases by 2% each year. This is because the real interest rate, which is the nominal interest rate adjusted for inflation, is negative in this case. The real interest rate can be approximated by subtracting the inflation rate from the nominal interest rate: 3% - 5% = -2%. This means that the purchasing power of the investor's money is decreasing by 2% each year, even though they are earning a nominal interest rate of 3%. This is because the inflation rate is higher than the nominal interest rate, which erodes the purchasing power of money over time.

Choice B is incorrect. The investor's purchasing power does not increase by 2% each year. The real interest rate (nominal interest rate - inflation) is negative (-2%), which means that the value of money is decreasing over time.

Choice C is incorrect. The total return by the investor in this country is not equivalent to 8%. This would be true if we were adding up the nominal interest and inflation rates, but this isn't how returns work in an economy with inflation. Instead, we need to consider how much purchasing power has changed, which involves subtracting the inflation rate from the nominal interest rate.

Choice D is incorrect. An investor in this country should not always expect a loss of 5% per year. While it's true that high inflation can erode purchasing power, it doesn't mean that investors will necessarily lose money at a constant percentage each year. In this case, because their investment return (3%) doesn't keep pace with inflation (5%), they're effectively losing 2% of their purchasing power.