"Simon is moving to Hawaii."
"Who ____ it!"
a. would have believed (correct)
b. could believe
Simon is moving. Stated another way, 'Simon is going to move.' The confusion comes from the notion that the moving will be in the future (possibly the present, but not likely it's happening at this very moment, so we can disregard that). So why would the correct response be in a past tense?
It's because the hearing and the believing of this news would happen in the past. The news would have been delivered in the past (before the actual move) and so the believing (or rather, the not believing) referenced would also have happened in the past- before the example exchange.
>---Simon decides to move---Simon announces he will move---believe/not believe the news---example exchange---Simon moves->