Sentence Correction

Received a PM asking me to reply.

I don't see a source for this problem. Can you please cite the source? Then I will be happy to reply!

Ok, thanks for the source. Let's use some different sentences to examine the principle.

The original sentence:

The use of GMAT books is based on the assumption that studying produces hormones in an individual that, in turn, create unconscious physical responses. (Yes, I know the meaning of the sentence is kind of amusing - I'm trying to match some singular and plural stuff in the original sentence!)

The "in turn" bit is just a little modifier tossed in to break up the sentence a bit and confuse you. Ignore it!

The use of GMAT books is based on the assumption that studying produces hormones in an individual that create unconscious physical responses.

Core:
The use <of X> is based on the assumption that studying produces <Y>.

Modifier Y:
hormones <in A> that create <Z> responses

No problems with core or modifier so far. I assume that the people who chose C thought there was something wrong with A, so let me know what you thought was wrong.

Now, adapting our new sentence for choice C:

The use of GMAT books is based on the assumption that studying produces hormones in an individual creating, in turn, unconscious physical responses.

Core:
The use <of X> is based on the assumption that studying produces <Y>.

Modifier Y:
hormones <in an individual creating responses?>

Still no problem in the core. That modifier, though... that's messy. There's no comma between "individual" and "creating" and that's a big problem. Try this phrase:
"stress in an individual studying hard for the GMAT"

What does that "studying hard for the GMAT" refer to? In this sentence, it's modifying the individual - and that makes sense.

But what about our example above? It's ambiguous here - "individual" is a candidate for the noun, because an individual can create unconscious responses... and so can the hormones... and, hey, so can studying! Which is it? Ambiguity = bad.

Note that there is no ambiguity in A, because the conjugated verb "create" can match only with a plural subject, so it must match with the plural "hormones." Now we know that it's definitely the hormones creating the responses.

"individual" is not a prepositional phrase, not by itself. By itself, it's a noun. And you can have an -ing word modify the noun in a prepositional phrase. (The prepositional phrase is "in an individual.")

For example:
Cheating causes problems for students trying to pass the test honestly.

(Clunky, yes. If I were writing an ideal sentence, I might want to say "for students who are trying..." but technically I can say it the way I said it in the example above.)

"for students" is a prepositional phrase. Who is trying to pass the test honestly? The students.

I don't have my OG book handy so can't comment on the explanation given in the book, but I will say that I have found some OG explanations, in the past, that are confusing, borderline misleading, and sometimes outright wrong, both in terms of actual grammar rules and in terms of contradicting other explanations for their own problems. (That last doesn't happen that often, but it does happen.) The questions are the best. The explanations are not.