Step 1: Property of Diamagnetic Substances:
A diamagnetic substance has a negative susceptibility. It is weakly repelled by a magnet and tends to move from a strong field region to a weak field region.
Step 2: Apply:
The meniscus of the liquid sits in the strong magnetic field. The liquid moves away from the stronger field, so the level of the liquid in that arm goes down.
Step 3: Compare With Paramagnetic:
A paramagnetic liquid would be attracted to the strong field, and the level would rise. The diamagnetic liquid behaves in the opposite way, so the level falls.
Final Answer:
The liquid level in that arm falls, option (B).
\[ \boxed{\text{(B) fall}} \]