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Exam Review

Key Facts: IAI CB2 Exam

3h 15m

Exam Duration

IAI CB2 syllabus

45%

Microeconomics Weight

IAI CB2 syllabus

45%

Macroeconomics Weight

IAI CB2 syllabus

20/60/20

Knowledge/Application/Higher

IAI CB2 syllabus

100

Practice Questions

OpenExamPrep set

Core

Subject Group

IAI Core Principles

IAI Subject CB2 Business Economics is a Core Principles paper sat as a written examination of 3 hours 15 minutes. The syllabus weights microeconomics and macroeconomics at roughly 45% each, with about 10% on economic principles and history, and assessment skills split approximately 20% knowledge, 60% application, and 20% higher order. CB2 mirrors the IFoA CB2 syllabus applied to the India context, including the Reserve Bank of India monetary framework. The IAI does not publish a fixed question count or a fixed pass percentage; the pass mark is set each diet. This free set drills the same syllabus through 100 multiple-choice questions.

Sample IAI CB2 Practice Questions

Try these sample questions to review concepts for the IAI CB2 exam. Each question includes a detailed explanation. Start the interactive quiz above for the full 100+ question experience with AI tutoring.

1In economics, the opportunity cost of a decision is best defined as:
A.The value of the next-best alternative forgone
B.The sum of all alternatives that were not chosen
C.The accounting cost recorded in financial statements
D.The total money spent on the chosen option
Explanation: Opportunity cost is the benefit lost from the single next-best alternative given up when a choice is made. It captures the real economic sacrifice of a decision, which may differ from the monetary or accounting cost.
2Which statement best distinguishes positive economics from normative economics?
A.Positive economics makes value judgements; normative economics is fact-based
B.Positive economics is about objective, testable statements; normative economics involves value judgements
C.Both are purely subjective and cannot be tested
D.Positive economics applies only to firms; normative economics applies only to governments
Explanation: Positive economics deals with objective statements that can in principle be tested against evidence (what is). Normative economics involves value-based opinions about what ought to be and cannot be settled by data alone.
3Adam Smith's concept of the 'invisible hand' refers to:
A.Cartels coordinating prices to maximise consumer welfare
B.Government intervention guiding markets to efficient outcomes
C.Self-interested individuals in competitive markets unintentionally promoting overall economic benefit
D.Central banks controlling the money supply
Explanation: Smith argued that individuals pursuing their own self-interest in competitive markets are led, as if by an invisible hand, to allocate resources in ways that benefit society as a whole. It is a foundational idea of classical free-market economics.
4A production possibility frontier (PPF) that is bowed outward (concave to the origin) reflects:
A.Decreasing opportunity cost as output expands
B.Zero opportunity cost because resources are unlimited
C.Constant opportunity cost between the two goods
D.Increasing opportunity cost as more of one good is produced
Explanation: A concave PPF shows that as production of one good rises, increasing amounts of the other good must be sacrificed because resources are not perfectly adaptable. This rising trade-off is the law of increasing opportunity cost.
5Keynesian economics is most associated with which policy prescription during a recession?
A.Active fiscal stimulus to raise aggregate demand and employment
B.Strict adherence to the gold standard and money-supply targets
C.Allowing wages and prices to fall freely with no intervention
D.Reducing government spending to balance the budget
Explanation: Keynes argued that in a recession, deficient aggregate demand can leave economies stuck below full employment, and that government should use fiscal stimulus (higher spending or tax cuts) to boost demand. This contrasts with the classical reliance on self-correcting markets.
6The law of demand states that, other things equal, as the price of a normal good rises:
A.Quantity demanded rises
B.Quantity demanded falls
C.Demand shifts to the right
D.Quantity demanded stays constant
Explanation: The law of demand describes an inverse relationship between price and quantity demanded, holding other factors constant. A higher price reduces the quantity buyers are willing and able to purchase, producing a downward-sloping demand curve.
7Which of the following would cause the demand curve for tea to shift to the right?
A.A rise in the price of tea
B.A fall in the price of tea
C.A rise in the price of coffee, a substitute for tea
D.An increase in the cost of producing tea
Explanation: A higher price of a substitute good (coffee) makes tea relatively more attractive, increasing demand for tea at every price and shifting its demand curve right. Changes in the good's own price cause movement along the curve, not a shift.
8If a 10% rise in the price of a good leads to a 25% fall in quantity demanded, the price elasticity of demand is:
A.Unit elastic, with a coefficient of 1.0
B.Perfectly inelastic, with a coefficient of 0
C.Inelastic, with a coefficient of 0.4
D.Elastic, with a coefficient of 2.5
Explanation: Price elasticity of demand equals the percentage change in quantity demanded divided by the percentage change in price: 25% / 10% = 2.5 (ignoring the sign). A coefficient above 1 means demand is price elastic.
9For a good with price-elastic demand, a firm that lowers its price will see total revenue:
A.Rise, because quantity demanded rises proportionately more than price falls
B.Stay unchanged, because elasticity is irrelevant to revenue
C.Fall to zero immediately
D.Fall, because quantity rises less than price falls
Explanation: When demand is elastic (coefficient greater than 1), the percentage increase in quantity exceeds the percentage fall in price, so total revenue (price times quantity) rises after a price cut. This is the key link between elasticity and pricing decisions.
10Two goods have a cross-price elasticity of demand of +1.8. This indicates the goods are:
A.Complements
B.Substitutes
C.Unrelated
D.Inferior goods
Explanation: A positive cross-price elasticity means that a rise in the price of one good increases demand for the other, which is the defining feature of substitutes. The larger the positive value, the closer the substitute relationship.

About the IAI CB2 Exam

IAI Subject CB2 Business Economics is a Core Principles subject that introduces microeconomic and macroeconomic concepts and their application to business decision-making, mirroring the IFoA CB2 syllabus in the India context.

Exam sponsor: Institute of Actuaries of India (IAI). The requirements and fees below concern the certification or admission exam, separate from our free practice resources.

Assessment

Written examination of 3 hours 15 minutes covering economic principles, microeconomics, and macroeconomics

Time Limit

3 hours 15 minutes

Passing Score

The IAI sets the pass mark for each diet; no fixed percentage is published in advance

Exam / Certification Fees

Set by the IAI fee schedule for the current sitting

Exam sponsor website

Fees, eligibility, and exam policies can change. Confirm them with the exam sponsor before applying or paying.

Our practice resources: topics covered

We aim to reflect publicly available exam outlines and topic information in our study resources. Coverage, format, and difficulty may differ from the actual exam, and we cannot guarantee that every detail is accurate or current. Confirm exam requirements, fees, and policies with the official exam sponsor.

10%

Economic Principles and History

Understand the economic way of thinking, opportunity cost, the production possibility frontier, positive versus normative economics, and the main schools of economic thought and their use in business.

45%

Microeconomics

Analyse demand and supply, price and income elasticities, consumer behaviour and utility, production and costs, perfect competition, monopoly, monopolistic competition, oligopoly, factor markets, externalities, public goods, and pricing strategies.

45%

Macroeconomics

Work with national income measurement and the multiplier, money and banking, inflation and unemployment, fiscal and monetary policy including the RBI framework, economic growth, international trade, the balance of payments, and exchange rates.

Preparing for the IAI CB2 Exam

What You Need to Know

  • Passing score: The IAI sets the pass mark for each diet; no fixed percentage is published in advance
  • Assessment: Written examination of 3 hours 15 minutes covering economic principles, microeconomics, and macroeconomics
  • Time limit: 3 hours 15 minutes
  • Exam / certification fees: Set by the IAI fee schedule for the current sitting Official sources

Using Our Practice Resources

  • Work through all 100 available questions
  • Review every answer and explanation
  • Track weak areas and revisit them
  • Use our AI tutor for tough concepts

IAI CB2: Suggested Study Strategy

1Treat CB2 as an application paper: practise explaining why a result holds and drawing the relevant diagram, not just memorising definitions.
2Master demand and supply, elasticities, and cost curves early because they recur throughout both microeconomics and macroeconomics questions.
3Learn the India-specific monetary policy tools, such as the repo rate, CRR, and SLR, since CB2 applies the syllabus to the Indian economy.
4For macroeconomics, be able to move between the circular flow, the multiplier, and aggregate demand and supply analysis to answer policy questions.
5Use timed mixed-domain question sets so you build the pace needed for a 3-hour-15-minute written paper.

Frequently Asked Questions

How long is the IAI CB2 exam?

CB2 is a written examination of 3 hours 15 minutes. It tests economic principles, microeconomics, and macroeconomics, with a strong emphasis on applying concepts rather than recalling them.

How many questions are on IAI CB2?

The IAI does not publish a fixed number of questions for CB2 because it is a written paper. Our free practice set covers the same syllabus through 100 multiple-choice questions with explanations.

What is the passing score for IAI CB2?

The IAI sets the pass mark for CB2 separately for each diet, so there is no fixed percentage published in advance. Candidates must achieve the prescribed marks for that sitting to be declared passed.

Which topics matter most on CB2?

Microeconomics and macroeconomics are the two largest areas, each carrying roughly 45% of the syllabus. About 10% covers economic principles and history, and the assessment leans heavily toward application and higher-order skills.

Does IAI CB2 follow the IFoA syllabus?

Yes. IAI Subject CB2 mirrors the IFoA CB2 Business Economics syllabus, applied to the India context. That includes Indian institutions such as the Reserve Bank of India and its monetary policy tools.

Is CB2 a multiple-choice exam?

The official CB2 is a written application-based paper that can include short calculations and graphical analysis, not a pure multiple-choice test. This prep set uses multiple-choice questions to reinforce the same syllabus content efficiently.