Answer:
C. He likes the fact that his stories about Grandpa appeal to the other kids.
Explanation:
"The Medicine Bag" is narrated by a boy named Martin who lives with his grandfather. Martin's grandfather is a good person and Martin has constant episodes in which he is proud of his grandfather followed by episodes in which he is extremely ashamed of his grandfather, the way he acts and his appearance.
To deceive this sense of shame he invented exciting and crazy stories, where his grandfather is a great hero. He creates these stories to brag about his grandfather among his friends and is very happy when he realizes that these stories are capable of attracting several children.