Final answer:
The depreciation of the dollar increases the prices of U.S. imports but decreases the prices of U.S. exports (option A), as the dollar's lower value makes U.S. goods cheaper for foreign buyers and foreign goods more expensive for American consumers.
Step-by-step explanation:
The depreciation of the dollar will: A. increase the prices of U.S. imports, but decrease the prices of U.S. exports. When the dollar depreciates, it means that each dollar is worth less compared to other currencies. This depreciation makes goods from other countries more expensive because more dollars are required to buy the same amount of foreign currency, and thus foreign goods. Therefore, U.S. consumers will have to pay higher prices for imports. Conversely, the decrease in the value of the dollar means that U.S. goods become cheaper for foreign buyers, using their stronger currency, leading to a potential increase in U.S. exports.
From the perspective of U.S. purchasers, a weaker dollar means that foreign currency and consequently foreign goods become more expensive, leading to a decrease in U.S. imports. This outcome can be disadvantageous for foreign exporters aiming at the U.S. market. For U.S. businesses, on the other hand, their products will be less expensive for foreign buyers, potentially increasing U.S. exports. Thus, the correct answer is Option A, which states that a depreciation of the dollar will increase the prices of U.S. imports and decrease the prices of U.S. exports.