Actuarial Science CB2 An Introductory Brief

“The truth of good economic doctoring is to know the general principles and to really know the specifics. To understand the context, and also, to understand that an economy may need some tender loving care, not just the so-called hard truths if it’s going to get by.” ― Jeffrey Sachs

I will start this article (Actuarial Science CB2) with some questions. Why does a packet of orange cost more than a pack of milk? Why does the price of goods change over time? Why do certain things become costlier on some particular days? How the price of a commodity is determined? These questions have just one answer and that is ECONOMICS. You will be very curious to know how and from where to learn Economics. In Actuarial Science we have this subject called CB2 that deals with the basic economic principles.

CB2 is the code for Business Economics. This subject comes under the Business (CB) module of the Core Principles section of Actuarial Science. Business Economics is basically the application of economic theory and methodology to business. It introduces the students to the core economic principles and equips them with the knowledge of how these principles are applied in the business world and hence helps in decision making.

According to Mc Nair and Meriam, “Business economic consists of the use of economic modes of thought to analyze business situations.” Siegel man has defined Business economics as “the integration of economic theory with business practice for the purpose of facilitating decision-making and forward planning by management.”

CB2 explores the fundamental concepts of Microeconomics and Macroeconomics.  Studying this subject makes a student proficient in the fundamental economic concepts which are essential for carrying out the Actuarial Valuation.

Now Let’s Have a Look at the Summary of the Syllabus of CB2

The syllabus of CB2 is divided into three sections which carry different weights:

  1. Economic models and recent historical applications (10%)
  2. Microeconomics – the behavior of consumers, firms, and markets (45%)
  3. Macroeconomics – relationships between governments, markets and firms, government policies and international trade (45%)

1. Economic Models and Recent Historical Applications

This section basically deals with the introduction to Business Economics. It covers the concepts of basic economics like scarcity, choices made by businesses, the difference between microeconomics and macroeconomics, the economic thinking strands and recent history of macroeconomics which comprise of topics like the progress of the world economy since the Great Depression, the crisis of 2008, etc.

2. Microeconomics

The subject matter under Microeconomics are as follows:

  • Different types of market and their operation
  • Market demand and supply
  • Market equilibrium
  • price and income elasticities of demand and price elasticity of supply
  • Future market movements
  • Price expectations and speculation
  • Consumption and production
  • The effects of advertising on sales and demand
  • Profit maximization under perfect competition, monopoly, and imperfect competition
  • Various pricing strategies

3. Macroeconomics

The topics covered are Government intervention in the market, globalization, international trade, balance of payments and exchange rates, the role of money and interest rates in the economy, financial system, unemployment, impact of macroeconomic policies on businesses and assessing how the supply side policies impact on businesses.

So, guys, I hope now you have an overall idea of the content matter of the subject.

Next, we will look at some common doubts you might be having regarding the new subject CB2.

The Difference Between CT7 and CB2

The main difference between CT7 and CB2 is the change in name.  There are not many changes in the syllabus of CT7 and CB2.  Some new topics are added like Macroeconomic history, the role of financial markets, participants in financial markets, economic thinking strands, indifference curves, and budget lines. Chapter 4, chapter 10 and some portion of chapter  9 are removed and there are some additions to chapter 17.

Duration of Exam

Three-hour assessment using objective test questions and “free-form” answer questions. Source: IFoA

Links to Other Subjects

CB1 – Business Finance
CB3 – Business Management
CM2 – Financial Engineering and Loss Reserving
CP1 – Actuarial Practice
SP5 – Investment and Finance Principles

Other Specialist Principles subjects and all the Specialist Advanced subjects require the use of economic judgment Source: IFoA

The Time Required in the Preparation of CB2

The recommended study time for the CT7 exam is between 125 and 150 hours depending on your past educational background in the subject. So the preparation time for CB2 might be the same. But it is always advisable to add on the hours of preparation because a lot of practice is required to clear the exam. The knowledge of economics is a pre-requisite when the practical side of any field is considered.

Also, economics is widely applied in the daily life of a person.  So you should be able to retain the concepts in your mind forever and hence it is suggested to dedicate a good amount time for this extremely useful subject.

Is CB2 a Theory Paper?

CB2 is basically a theory paper comprising of multiple choice questions as well as essay type questions. The question paper generally comprises of 26-30 multiple choice question of 1.5 marks each and around 6-10 long and medium questions of around 5-12 marks.

Passing Mark of CB2

The average pass rate is 70% for CT7. So we can expect the same for CB2 as well.

Is it necessary to take coaching for the subject?

For those students who have studied economics need not take coaching. Even if you have just the basic knowledge of economics you don’t need to take coaching because it is a subject that you could learn yourself with ease. Collect essential books and other reference material and you can prepare yourself and easily clear the exam.

For those who haven’t encountered economics before may require coaching because the teachers will help you to understand the concept better. It will also save your time. But it is completely up to the student to decide on whether to take coaching or not.

Any Study Tips?

  • CB2 is generally considered as an easy paper compared to other subjects in this module but clearing this paper require sincere efforts on your part.
  • First two sections of core reading material are easy and the last two sections are comparatively difficult.
  • MCQs are tricky, not leaving any topic from CB2 is advisable.
  • This subject will be very useful throughout your life to understand the economic interpretation of any model. To understand the concepts rather than memorizing the theory.
  • Make use of charts and diagrams as it will help you score more marks.
  • Practice time management. Solve as many question papers as you can
  • Revise at least thrice.
  • Make your habit to practice long questions in writing rather than just reading and thinking. Although you might know the concept you may find presenting your answer difficult leading to wastage of time during the examination.

So let’s welcome the new subject CB2 to our Actuarial lives. Happy learning

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