Explanation:
The correct answer is option 'A' because the word "that" is used as a relative pronoun to refer to a specific noun or noun phrase in the sentence. In this case, "that" is used to refer to the neighborhood.

Relative Pronouns:
Relative pronouns are words that are used to connect a dependent clause (or relative clause) to a main clause. They introduce additional information about a noun or noun phrase in the main clause.

Examples of Relative Pronouns:
- that
- which
- who
- whom
- whose

Usage of "That" as a Relative Pronoun:
In the given sentence, the word "that" is used as a relative pronoun to introduce the dependent clause "they have been living in." The dependent clause provides additional information about the noun phrase "the neighborhood."

Alternative Option 'B':
The alternative option 'B' is "in which." While this option is grammatically correct, it is not the best choice in this context. "In which" is more formal and less commonly used in everyday speech. Option 'A' using the relative pronoun "that" is a more natural and commonly used construction.

Conclusion:
In conclusion, when referring to a specific noun or noun phrase as the subject of a dependent clause, the relative pronoun "that" is commonly used. In the given sentence, the correct answer is option 'A' because "that" is used to introduce the dependent clause that provides additional information about the neighborhood.

Because it was showing that in which town it which they were