Although berk has given you an in depth explanation on some of the issues with this question, I think this is a perfect question to exemplify why its important to always
ask yourself what the test maker is trying to test. In this case, at soon as I saw "same horizontal pipe" and "two points of fluid flow", I immediately jumped to: "This question is going to test me on whether I understand bernoulli's principle of near-ideal fluid flow and the relationship between fluid velocity and fluid pressure."
So while it's true that the question doesn't seem to indicate that the fluid flow is near-ideal, because of the wording of the questions and my instinct about what concept is trying to be tested in this question, I'm pretty sure that it was intended to be near-ideal. They should have included that though...
Caveat: This question does not work with completely ideal fluid flow. If you can figure out why, you really understand what's going on, and I'll give you a prize lol.
Now, given that fluid flow in this problem is near-ideal, we can use bernoulli's principle. Bernoulli's principle states something to the effect of, "Fluid velocity and fluid pressure are inversely related. That is, when the fluid velocity of an ideal fluid increases, the fluid pressure decreases. When the fluid velocity of an ideal fluid decreases, the pressure must increase."
It might seem counter-intuitive, but this is actually what happens in ideal systems. For instance, if you have a pipe demarcated by points "A" "B" and "C", and there is an instantaneous decrease in the pipe raidus at point B, then you'll have a lower fluid velocity and higher fluid pressure in the compartment from A to B (larger cross-sec area), and a higher fluid velocity and a lower fluid pressure in the compartment from B to C (smaller cross-sec area). Again, counterintuitive, but it's true. Check out the picture on wikipedia to see a real-example of this:
http://en.wikipedia.org/wiki/Bernoilli_equation.
What the question is really asking is: "If I increase the velocity of an ideal fluid, then what happens to the pressure? Then, knowing how pressure and temperature are related, what happens to the temperature?"
See the trick? The question wants you to realize that you are to apply bernoulli's principle, and the extend that application to include temperature. <= This relates to why the question must be dealing with a "near ideal" fluid and not an "ideal" fluid.
So let's work through it:
If the fluid velocity increases, then bernoulli's principle says that the fluid pressure must decrease. Okay, so pressure goes down. Now, what does this say about the temperature? Well pressure and temperature are related in that if pressure decreases, then temperature also decreases.
So just knowing those facts, you can work out that the answer should be "A".
Now, let's talk about kinetic energy as it seems that there is a bit of confusion on that point.
When we are talking about "average kinetic energy" of the particles, meaning the kinetic energy that determines the temperature, it is implied in this definition that the kinetic energy we are talking about is that energy which contributes to the random motion of the particles such that they collide with each other and release heat. So a higher kinetic energy = a higher frequency of collisions = higher temperature.
In this problem, however, in addition to that "kinetic energy of collisions" we also have a more or less uniform motion of fluid flow which carries with it another kinetic energy; that kinetic energy's velocity, because it's in one uniform direction, does not contribute to the temperature, because it does not increase the frequency of collisions. Only the kinetic energy that causes collisions will increase the temperature. This is why a faster fluid flow cannot increase temperature, unless, as berk review stated, it also increases turbulent flow, thereby increasing the temperature.
In a "near-ideal" fluid which I've set up here, this is the crux of the issue that Berk is talking about:
Which has a greater effect on temperature in a near-ideal fluid system: the increase in turbulent flow and resultant collisions due to increased forward fluid flow, or the decrease in pressure brought about by the application of bernoulli's principle. Obviously for this problem to work, I've had to implicitly define a "near-ideal fluid" to mean one where the contributions from turbulent flow to temperature are less than those from the application of bernoulli's principle. These two concepts really are at odds because bernoulli's principle can't even be applied to fluid systems with a high enough mach number (basically meaning non-ideal fluids)...but for the sake of appeasing the test maker and what he's trying to test, just play along and assume that the fluid is ideal enough to follow bernoulli's principle, but also just turbulent enough to have collisions leading to temperature changes. Is it a bad compromise? Yes...but I wouldn't be surprised if a problem like this slipped past the AAMC error checkers. :/