Frame this around the second-messenger cascade that PTH uses. PTH binds a receptor coupled to Gs; the activated Gsα subunit switches on adenylate cyclase, which manufactures cAMP, the messenger that carries out PTH's renal and skeletal actions.
Pseudohypoparathyroidism is a state of hormone resistance rather than hormone deficiency, so circulating PTH is high but the tissue cannot act on it. In the classic type Ia form, the lesion is an inactivating (loss-of-function) defect of Gsα from a GNAS mutation. With a crippled Gsα, adenylate cyclase is poorly stimulated and cAMP output falls; this is why the urinary cAMP response to exogenous PTH is blunted.
Checking the alternatives: a gain-of-function in Gsα would amplify rather than impair signalling, so it is the opposite of the disease; the GTP-to-GMP conversion is not part of this receptor cascade; and inositol triphosphate belongs to the Gq/phospholipase-C arm, which is not how the PTH-Gs axis fails here.
Therefore the correct physiological statement is reduced cAMP generation.
\[\boxed{\text{Decreased formation of cAMP}}\]