This is one of a series of reports summarizing the results of the second mathematics assessment conducted by the National Assessment of Educational Progress (NAEP). Nine, 13- and 17-year-olds were assessed during the 1977-78 school year. The assessment measured achievement in various content areas at four levels of cognitive processes (knowledge, skill, understanding and application). This report describes performance on application items. The report includes results for one-step word problems, problems about consumer situations, multi-step word problems, non-routine problems, and problems involving geometry, measurement, probability and statistics, graphs and tables, or reasoning making judgments. The report also includes group results, age level comparisons and observations on the results. The observations, consisting of interpretation, consideration of implications and recommendations, were made by a panel of persons active in the field. The panel felt that the results implied that problem solving is a major area of concern in mathematics education. Among the panel's seven recommendations were an expanded definition of what is "basic" modification of textbooks to include a greater variety of problem-solving tasks and more emphasis on the teaching of problem solving. (PK) Primary type of information provided by report: Results (Selective).