4 5 6 . Trade diversion is said to exist when the formation of a regional trading group leads to the reduction of trade with nonmember countries in favor of member countries. . Both free-trade areas and customs unions have a common external tariff. . The \"J curve\" represents an initial worsening of the trade balance with devaluation. . Export losses by countries outside of a trade agreement are known as trade deflection. . Under NAFTA, Canada, Mexico, and the U.S. will have a common external tariff that they will apply to all nonmember countries. . If the dollar appreciates against the Euro, this change will be favorable to US. importers of European wine. . Money market mutual funds are a component of M1 but are not included in M2. . The monetary base is equal to the reserve requirement. . Fiscal policy involves the use of tax and spending policies by the government to influence the level of aggregate demand. 10. External balance refers to the government achieving levels of unemployment and inflation that fit the preferences of the citizens of the country