I'm sure everyone has already put two and two together, but just in case anyone needs reassurance:
In its ground state, O has this electron configuration: 1s2 2s2 2p4
This produces paramagnetism since the outermost subshell (2p) has both paired and unpaired electrons. This happens when the outermost subshell is between half-full and completely-full.
Promoting the 2s2 electrons to 2p, gives this excited state electron configuration: 1s2 2s0 2p6
This produces diamagnetism since the outermost subshell contains only paired electrons. This happens when the outermost subshell is completely-full.
That's why the question specifies ground state...it makes a difference.
Side note: having an exactly half-full outermost subshell produces ferromagnetism (all orbitals filled singly). Ferromagnetism is the magnetism of permanent magnets and is the strongest of the three. Paramagnetism is like a much weaker version given an external magnetic field. Diamagnetism is actually the weakest, and gives a repulsion in an external magnetic field.
