This possibility and the unprecedented level and persistence of long-term unemployment in this recovery have prompted some to ask whether a significant share of unemployment since the recession is due to structural problems in labor markets and not simply a cyclical shortfall in aggregate demand.
The fall of confidence has had a direct impact on agents’ behaviour. Consumption and investments have fallen. Portfolio investments are shifted away from any risk, and towards liquid assets. Banks do not lend to each other and the interbank market, which is at the basis of all markets, does not function properly. There is a tendency to reduce bank lending to the real economy.