Testing the Closed Loop Mode of your O2 Sensor.
Difficulty? Low
Total time: Minimal.
Applications: 86-88 NA/Turbo, 89-91 NA/Turbo
DISCUSSION:
If you've tested your O2 sensor and discovered that it is functioning properly, you may want to test the operation of your closed loop mode. The closed loop operation of our cars refers to the point where the ECU makes adjustments to the air/fuel mixture according to the signal given from the O2 sensor. The car does this in order to increase fuel economy.
CLOSED LOOP OPERATION:
To test closed loop operation, you need to return to the ECU / Diagnostic plug next to the battery. If you read the TPS article for the 86-88 cars, then your probably pretty familiar with it, if not here it is again:

If you look at the plug, you'll see 4 wires. #1 and #2 are for retrieving data from the ECU and are not used here. To test the Closed Loop operation you are interested with the 12V+ and the wire marked O2:

You can either use a test light similar to the one used to set the TPS, or you can use a volt meter. Connect the positive side of your volt meter (test lamp) to the +12V, and the negative lead to the O2 sensor output.
TEST METHOD #1) This method is used to test closed loop operation while the car is parked.
1) Disconnect the neutral switch connector located on the right hand side of the transmission. (If you have an automatic, don't worry about it)
2) Next, start the engine and allow it to warm up. Once warm disconnect the TPS sensor. With the TPS disconnected, you should get positive voltage or you test lamp should illuminate for about 10 seconds.
3) Increase engine speed until 2,500 / 3,000 RPM. You should now see the voltage go up and down on your voltmeter, or your test lamp should begin to flash. Proper operation is a light that flashes 8 times every ten seconds.
TEST METHOD #2) Use this method to test the closed loop operation on the road.
If you don't feel like disconnecting the neutral switch under the car, you can always run your test lamp to inside the car, and go for a drive. The test will work the same. At 2,500 / 3,000 RPM, your test lamp will flash 8 times for every ten seconds.