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As an object falls freely near the surface of the Earth, its potential energy decreases while its kinetic energy increases. This is due to the conservation of energy principle, which states that energy cannot be created or destroyed, only transformed from one form to another.

When the object is at a higher position, it has gravitational potential energy, which is determined by its height above the ground. As it falls, the height decreases, consequently reducing the potential energy. At the same time, as the object accelerates downward due to gravity, its velocity increases, leading to an increase in kinetic energy, which is associated with the motion of the object.

The total mechanical energy (the sum of kinetic and potential energy) of the falling object remains constant in the absence of air resistance and other non-conservative forces. Therefore, the correct interpretation is that the kinetic energy increases while potential energy decreases as the object falls. This dynamic illustrates the interplay between kinetic and potential energy during free fall.