The answer will be option B) 2.
Solution :
For max area, the rectangle will be a square. So, if x is the side of the square, we have
$x^2 + x^2 = (2(1))^2$
Here, the diagonal of the square will be equal to the diameter of the circle.
Solving this, we get $x = \sqrt{2}$ or the area of the square as 2 sq.units.