When the government sells bonds, it essentially borrows money from investors. This can lead to an increase in interest rates because there is higher demand for borrowing. As the government competes with other borrowers for funds, interest rates tend to rise. An increase in taxes can have a direct impact on disposable income for individuals and businesses. Higher taxes reduce the amount of money people have available for spending and investment. As a result, consumption and investment may decrease, leading to lower output and economic activity.