Final answer:
A depreciation of the U.S. dollar against foreign currencies tends to increase the cost of imports for U.S. buyers and decrease the cost of exports for U.S. sellers, affecting the economy in significant ways.
The correct option is 1 and 2.
Step-by-step explanation:
When the U.S. dollar depreciates against foreign currencies, this tends to have two primary effects on the economy:
Increase the cost of imports: U.S. buyers will find that foreign goods become more expensive because the weaker dollar means that more dollars are required to purchase the same amount of foreign currency, hence, imports are more costly.
Decrease the cost of exports: Conversely, U.S. products become less expensive to foreign buyers as it costs them fewer units of their currency to buy a dollar's worth of U.S. goods. This could potentially increase demand for U.S. exports.
Therefore, the answers are: 1) Increase the cost of imports and 2) Decrease the cost of exports. A depreciation of the dollar does not necessarily stabilize the exchange rate, nor does it have no effect on the economy, eliminating options 3 and 4.
The correct option is 1 and 2.