Why might an increase in trade volume not correspond to an increase in hard-currency earnings? Illustrate your argument by using the example of a devaluation, which is a deliberate cheapening of the exchange rate—the rate at which domestic currency can be exchanged for foreign currency, say dollars.

(a) Why does a devaluation tend to increase the exports of a country, expressed in the local currency or in physical units?

(b) Discuss when the devaluation can raise export earnings denominated in the foreign currency. You can profitably use the concept of price elasticity of demand in your discussion.