Legal Definitions - M3

M3

M3 is a measure of the money supply that includes all the items in M2, such as cash, checking accounts, and savings accounts, plus large time deposits and money-market funds held by institutions.

• A largecorporation has $10 million in a money-market fund. This amount is included in M3.
• A pension fund has $50 million in a long-term time deposit. This amount is also included in M3.

These examples illustrate how M3 includes not only the money that individuals and businesses hold in their bank accounts but also the money that institutions hold in large time deposits and money-market funds. This broader measure of the money supply can provide a more accurate picture of the overall liquidity of the economy.