In some questions we have a constant ratio that we work with. In this case, the ratio changes, and the number of classes changes, but the total number of students stays the same. Focusing on the units, we can write
(students/class) x (number of classes) = 120
On the left, both the ratio and the number of classes are integers, since we are not dealing with fractional students or classes. So, looking at the answer choices, we could be talking about 3 students per class and 40 classes, 4 students per class and 30 classes, and so on.
Actually, there we have our answer: if we increase the students per class from 3 to 4, the number of classes decreases from 40 to 30, just as the question indicates. So the current ratio is 3.
The correct answer is (A).