"The people are in the restaurant."
Translation:Die Menschen sind im Restaurant.
did they put in the "in die" as one of the suggestions just to throw me off, or is there a way in which it could be that instead of "In dem"?
No, as (das) Restaurant is a neuter noun, there is no use of the article die in the singular.
In plural, of course, die Restaurants is the form used for nominative and accusative case.
This is a tricky one. in die = in the
the restaurant = das Restaurant
When saying "in" in terms of location (where?) we use Dativ which would turn therefore into IN DEM restaurant (you were right). BUT we put those two words together just to simplify so it turns into IM D
in dem = im