The process that is taking place in the picture's representation is inhalation because we can see how the air entering the lungs is represented there by a showing down arrow, and the signaling sides two arrows, which represent the chest cavity expanding to allow the air to get inside. This process is achieved mainly by the movement of the diaphragm muscle, which with its contractions and relaxations generates a pressure gradient with respect to the air surrounding us: when it contracts itself, the air enters our lungs because the pressure is lower inside them due to the reduction of its volume, and when it relaxes, the air get out of our lungs to the atmosphere, because of the increased volume of this muscle. We can see this graphically in the picture below.
The correct answer then is the first one: A) inhalation; the diaphragm is contracting.
