The initial value of the deposit is $2,000, and the initial price of a young-adult book is $10.00. You can compute the purchasing power of Dariya's initial deposit in the following way:

In the absence of any inflation, the price of a young-adult book remains at $10.00 after one year, while the value of Dariya's deposit increases to $2,000×(1+0.05)=$2,100$\mathrm{\$2,000}\times \left(1+0.05\right)=\mathrm{\$2,100}$. With zero inflation, the purchasing power of the one-year-old deposit rises to $2,100$10.00=210$\frac{\mathrm{\$2,100}}{\mathrm{\$10.00}}=210$ books. The percentage change in purchasing power reflects the real interest rate; therefore, you can calculate the first entry in the final row of the table in the following way:

The real interest rate can also be approximated by taking the nominal interest rate minus the inflation rate (5%−0%=5%$\mathrm{5\%}-\mathrm{0\%}=\mathrm{5\%}$).

When the rate of inflation is 5% per year, the price of a young-adult book rises to $10.00×(1+0.05)=$10.50$\mathrm{\$10.00}\times \left(1+0.05\right)=\mathrm{\$10.50}$. The value of the deposit rises by 5% over the course of the year as well. After one year, the deposit has the power to purchase $2,100$10.50 per young-adult book=200 books$\frac{\mathrm{\$2,100}}{\mathrm{\$10.50}\mathrm{ per }\mathrm{young-adult book}}=200\mathrm{ }\mathrm{books}$. If the inflation rate is equal to the interest rate on the deposit, the purchasing power of the deposit does not change over time, so the real interest rate is 0%.

At an annual rate of inflation of 8%, the price of a young-adult book rises to $10.00×(1+0.08)=$10.80$\mathrm{\$10.00}\times \left(1+0.08\right)=\mathrm{\$10.80}$. The value of the deposit rises by only 5%. After one year, the purchasing power of the deposit is approximately 194 books ($2,100$10.80 per young-adult book$\frac{\mathrm{\$2,100}}{\mathrm{\$10.80}\mathrm{ per }\mathrm{young-adult book}}$). Again, the real interest rate can either be approximated as the difference between the nominal interest rate and the rate of inflation (5%−8%=−3%$\mathrm{5\%}-\mathrm{8\%}=\mathrm{-3\%}$) or by calculating the percentage change in purchasing power:

When the rate of inflation is greater than the interest rate on a deposit, the purchasing power of the deposit falls over time. You can see this by examining the purchasing power in the case of 8% inflation with a nominal interest rate of 5%. In this case, the purchasing power falls from its initial value of 200 books to 194 books.