It seems google did a PR update and my sites PR increased from 2 to 3. Will it increase my site's traffic and hence adsense revenue?
I don't think there's a correlation between site PR and traffic. One of my site has been increased to PR 3 but I have yet to feel its resulting effect.
Just like others said, PR has nothing to do with traffic. But with a high PR, your site will be crawled frequently and more deeply and there will be more changes of your internal pages getting indexed which might indirectly result in an increase in SE traffic but you will not notice this at once.
high pr gives stability to your raking keywords in niche.But if that niche has no or very less traffic there is no earning.
PR is one of the 200 factors that influence a site's ranking in SERPs. But PR alone cannot make a big difference. Try to do other things that can help you improve your site's ranking in SERPs: then PR and other things will help to increase the traffic which will increase the earnings.
PR Used to be very important in the past. Right now its all about the # of relevant links A higher PR probably means you have more links which is a GOOD thing