The additional reserves of $1,000 can be created for up to $20,000 of new money at a reserve ratio of 5%.
Option C is the correct answer.
A reserve ratio refers to the proportion of deposits that the banks have to keep as reserves with the central bank.
Given values:
Reserve ratio: 5%
Additional reserves: $1,000
Computation of new money:
[tex]\rm\ New \rm\ money=\frac{\rm\ Additional \rm\ Reserves}{\rm\ Reserve Ratio} \\\rm\ New \rm\ money=\frac{\$1,000}{0.05} \\\rm\ New \rm\ money=\$20,000[/tex]
Therefore, the amount of $20,000 as new money has been created by additional reserves of $1,000 at a reserve ratio of 5%.
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