Final answer:
First State Bank can lend out $45 million, which is 90% of its deposits, after fulfilling the 10% reserve requirement of $5 million from its total $50 million in deposits.
Step-by-step explanation:
First State Bank has $50 million in deposits and a reserve requirement of 10%.
Based on the reserve requirement, the bank must hold $5 million (10% of $50 million) as reserves.
However, the bank can lend out the remaining 90% of the deposits, which in this case would be $45 million ($50 million - $5 million in reserves).
It's essential to note that prior to March 2020, banks in the United States were required to hold a fraction of deposits as reserves.
This was determined by the Federal Reserve and varied depending on the total amount of deposits a bank had. Post-March 2020, due to the pandemic-induced recession, the Federal Reserve reduced the requirement to 0%, effectively eliminating the reserve requirement for all depository institutions.
Nonetheless, for the purpose of this question, we assume the reserve requirement is still at 10% as stated.