To demonstrate how the universe is expanding, the students should choose:
D. All of the balloons should be moved away from each other so there is more distance between them.
This effectively illustrates that as the universe expands, galaxies (represented by the balloons) move away from each other, similar to how galaxies in the universe are receding from one another as space itself expands. The increase in distance between the balloons symbolizes the expansion of the universe.