We analyze how light-induced coherent population oscillations and ground-state Zeeman coherence in an atomic medium with degenerate two-level transitions can modify spectra of applied cw resonant radiation at the sub-mW power level. The use of mutually coherent optical fields and heterodyne detection schemes allows spectral resolution at kHz level, well below the laser linewidth. We find that ground-state Zeeman coherence may facilitate nonlinear wave mixing while coherent population oscillations are responsible for phase and amplitude modulation of the applied fields. Conditions for the generation of new optical fields by nonlinear wave mixing in degenerate two-level atomic media are formulated.