M0, referred to as the monetary base or high-powered money, encompasses the overall liabilities of the central bank, including both cash in circulation and the reserves held by private sector banks at the central bank. This measure reflects the most liquid form of money available in the economy.

M1, on the other hand, is known as narrow money. It consists of cash in circulation along with demand deposits, which are accessible for immediate withdrawal. This classification is vital for understanding the different layers of money supply and their implications for economic activity.