The macroeconomic policy of monetary policy is defined as the Reserve Banks pursuit of price stability in the medium term. Monetary policy involves Australia's cash rate in order to maintain and influence, where necessary, interest rates most commonly in pursuit of price stability, which is deemed to be an increase of around 2-3 per cent inflation rate over the 7-10 year economic cycle. This policy is focused on the demand side of the economy, stimulating it or restraining it as required and therefore often referred to as demand management policies. One of the objectives of monetary policy is to maintain domestic price stability, this area of management focuses on price stability, full employment and economic growth. Domestic stability is a situation where a reasonably stable level of economic activity is achieved consistently with low inflation, low unemployment and sustainable economic growth.

The microeconomic policy of price stability aims...