India is a major exporter of agricultural products and software and a major importer of oil which is priced in USD. If India devalues its currency INR, how does this action affect India’s exports and imports? Explain.

What effect would a devaluation of a country's currency most likely have on its export volumes? A. Export volumes would decrease, as goods become more expensive in foreign markets. B. Export volumes would increase, as goods become cheaper in foreign markets. C. Export volumes would remain unchanged, as currency value does not affect trade. D. Export volumes would initially decrease, but then increase over time due to adjustments in trade agreements.

Demand for imports (before $-devaluation) Demand for imports (after $-devaluation) Price of imports, in foreign currency (before $-devaluation) Yes No USA Japan 400 600 200 10 800 100 Suppose the $ is devalued: we go from Yen = $1/100 to Yen = $1/10. Does the Marshal-Lerner condition hold in this example?

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