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Could you please explain.. here in option b, Is 'as' used to provide reason or explanation provided in the later half of the sentence ?
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Option B seems to be the best answer.

Option A -
"which" refers to Italy. Incorrect.
Also, option A is a run-on sentence. Two independent clauses are connected by a comma.
"... the study of medieval archeology has prospered ..., numerous towns and regions up and down the peninsula have raised ..."

Option B -
"as" seems to be used in the same sense as "because".
the phrase "backed by a campaign led by the journal Archeologia Medievale" is a participial modifier that refers to the nearest noun phrase "numerous towns and regions up and down the peninsula".

Option C -
Usage of "in that" is incorrect. in that = in this sense.
"in that" is used to describe a "symptom", not a "cause"

for example -
the new computer is better in that it has a faster processor. (It is better in this sense -> it has a faster processor - this is a symptom of "better")

Here, it says that the study of medieval archeology has prospered in this sense - "numerous towns and regions have raised funds". (does not make sense).

"numerous towns and regions have raised funds ..." is a cause (not a symptom) for "has prospered". We need "because", not "in that".

Option D -
Also, option A is a run-on sentence. Two independent clauses are connected by a comma.
"... the study of medieval archeology has prospered ..., numerous towns and regions up and down the peninsula have raised ..."

Option E -
Run-on sentence like other answer options.
Usage of "due to" is incorrect. "Italy" was not due to (= caused by) a campaign.
Also, note that "due to" is a preposition and must be followed by a noun. "backed by ..." is not a noun.
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VKat
Could you please explain.. here in option b, Is 'as' used to provide reason or explanation provided in the later half of the sentence ?

The explanation by CrackVerbalGMAT explains your query. In case you still have doubts or further queries, please click the "request expert's reply" button and post again - closing this request.
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The logical meaning of the sentence:

Over the past 25 years, the study of X has prospered in Italy. This study has been backed by a journal, and numerous towns and regions up and down the peninsula have raised funds for the study to know their past.

A) 'which' modifies Italy and conveys the meaning that "Italy is backed by the campaign". This is not a logical construction. Moreover, "which...Archeologia Medievale" acts as a modifier and if we remove it we get a structure "...has prospered in Italy numerous towns and regions up and down..." which doesn't make sense (a run on, may be). The part "...numerous towns and regions up and down..." is also a reason for the prosperity of the study but that doesn't get conveyed properly.

B) "...has prospered in Italy as numerous towns and regions up and down..." conveys the meaning that "...the numerous towns and regions up and down..." is a reason for the prosperity of the study.

C) "in that" doesn't seem quite a fit.

D) The option gives us a run on sentence. "...has prospered in Italy (being backed by a campaign...) numerous towns and regions up and down...". The part "...numerous towns and regions up and down..." is also a reason for the prosperity of the study but that doesn't get conveyed properly.

E) Replace "due" to with "caused by" -> the meaning becomes illogical, and this option also commits the same error as committed by option D. The part "...numerous towns and regions up and down..." is also a reason for the prosperity of the study but that doesn't get conveyed properly.

Thus, option B.
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