What would happen to the buying power of your investment after one year if your rate of return was 8% and the rate of inflation was 3%?

As long as the rate of return is bigger than the inflation, the value and amount of money will increase and so will the purchasing power: the correct answer is "it will increase".

For example, if you invest 100 dollars, you will receive 108 dollars back, and you'd need 103 dollars to have the same value of money as before - but you have more.