Introduction to Econometrics 3rd Edition by James Stock, Mark Watson

Exercise 8

Suppose that Y i = 0 + 1 X i + u i , where ( X i , u i ) are i.i.d., and X i is a Bernoulli random variable with Pr( X = 1) = 0.20. When X= 1, u i is N (0, 4); when X = 0, u i is N (0,1).
a. Show that the regression assumptions in Key Concept 4.3 are satisfied.
b. Derive an expression for the large-sample variance of
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