March 23, 2018 

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INCOME: Revenue earned or received by households that can be used for consumption or saving. For the aggregate economy, earned income is termed national income, while received income is termed personal income. The key is that income for the aggregate economy is generated in the production of goods and services.

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The wide-range monetary aggregate for the U.S. economy containing the combination of M2 (currency, checkable deposits, and assorted savings deposits) and large-denomination, institutional near monies. M3 contains financial assets that are relatively liquid, but not quite as liquid as those found in M1 or M2. The near monies added to M2 to derive M3 include large denomination certificates of deposit, institutional money market mutual funds, repurchase agreements, and Eurodollars. M3 is one of three monetary aggregates tracked and reported by the Federal Reserve System. The other two are designated M1 and M2.
M3 is the broadest measure of the three measures of the money supply for the U.S. economy. It includes all of the items found in M1 (currency and checkable deposits) and M2 (savings deposits, money market deposits, certificates of deposit, and money market mutual funds), plus several slightly less liquid bank accounts that used for short-term investments or as institutional savings.

The near monies added to M2 to derive M3 are best thought of as short-term, interest-generating, but liquidity-maintaining, investments. These are commonly used by banks, businesses, and other organizations to temporarily store stockpiles of funds. These near monies provide a significant degree of liquidity, but also to generate a modest interest return. Institutions make use of these financial assets when they do not want to tie up their funds in long-term investments (thus maintaining liquidity), but they also want to generate at least some interest return.

The key for the M3 monetary aggregate is that these financial assets are relatively liquid and can be converted to spendable money in a short period with little or no loss of value. While they are extremely liquid, they are just not quite as liquid as the near monies contained in M2.

Some Recent Numbers

June 2004 (Billions)


Near Monies3,000.3
Institutional Money
Market Mutual Funds
Time Deposits
Repurchase Agreements535.8

Total M3$9,293.0

The table to the right presents values for M3 and its two key components, M2 and near monies. While these numbers are likely to change as economic conditions change, they provide a bit of insight into the money supply.
  • First, in early 2004 M3 was running at just over $9.2 trillion. This was approximately $31,400 for every man, woman, and child in the United States. This average amount includes both spendable money (M1), the near monies added to M2, plus a stockpile of institutional investments and savings.

  • Second, M2 is about two-thirds of M3, with the remaining one-third comprised of the four institutional near monies--institutional money market mutual funds, large-denomination certificates of deposit, repurchase agreements, and Eurodollars. These institutional near monies are used by banks, businesses, and other organizations as short-term, interest-generating, but liquidity-maintaining, investments.

  • Third, the M3 near monies contain about equal proportions of institutional money market mutual funds and large-denomination time deposits (certificates of deposit). The remainder is comprised of repurchase agreements and Eurodollars.

Near Monies

M3 is the sum of M2 and institutional near monies. These near monies are financial assets (primary bank accounts) that can be converted to currency or checkable deposits with little or no loss of value. Like the near monies added to M2, these assets are almost money, but not completely.

The four primary near money assets added to M2 to calculate M3 are: (1) institutional money market mutual funds, (2) large-denomination certificates of deposit, (3) repurchase agreements, and (4) Eurodollars.

  • Institutional Money Market Mutual Funds: These are deposits with nonbank mutual fund companies that are typically owned by institutions (rather than consumers). More specifically they are money market mutual funds with a minimum initial deposit of $50,000.

  • Large-Denomination Certificates of Deposit: These are certificates of deposits issued by banks with a minimum deposit of $100,000. Such certificates of deposits also tend to be owned by businesses and other institutions, rather than consumers.

  • Repurchase Agreements: These are short-term transactions in which a financial asset is sold, then automatically repurchased after a specified time (often overnight). The difference between the sale price and repurchase price is the interest payment on this short-term loan. Overnight repurchase agreements are commonly used by banks to generate interest on business checking accounts (which cannot legally receive interest payments).

  • Eurodollars: In general, these are deposits in one bank that are designated in the currency of a foreign bank. The "Eurodollar" term arose because these deposits were originally in European banks and denominated in U.S. dollars. In particular, the Eurodollar deposits included in M3 are those held by U.S. residents at banks Britain and Canada.

The Other Two

M2 is the medium-range monetary aggregate. Two other monetary aggregates tracked by the Federal Reserve System are M1 and M3.
  • Narrow-Range Money: M1: This is the combination of currency (and coins) issued by government and held by the nonbank public and checkable deposits issued by banking institutions. M1 contains the two items that function as THE medium of exchange for the U.S. economy.

  • Medium-Range Money: M2: This is M1 plus the addition of highly liquid, savings-type near monies. The near monies added to M1 to obtain M2 include savings deposits, certificates of deposit, money market deposits, and money market mutual funds. Some folks consider M2 a better overall measure of the economy's money supply than M1.


Recommended Citation:

M3, AmosWEB Encyclonomic WEB*pedia,, AmosWEB LLC, 2000-2018. [Accessed: March 23, 2018].

Check Out These Related Terms...

     | monetary aggregates | M1 | M2 | L | repurchase agreements | Eurodollars | savings deposits | money market deposits | money market mutual funds | certificate of deposit | currency | checkable deposits | near monies | plastic money |

Or For A Little Background...

     | money | money functions | money characteristics | fiat money | commodity money | medium of exchange | liquidity |

And For Further Study...

     | money creation | fractional-reserve banking | banking | Federal Reserve System | monetary economics | monetary base | monetary policy | debit card | monetary economics |

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     | Federal Reserve System | Federal Reserve Education | U.S. Department of the Treasury | The Currency Gallery |

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