Under normal conditions it doesn’t really do anything. In anesthesia we use it because it will help keep the small air sacks (alveoli) open and prevent absorption atelectasis. This is a condition caused when you have 100% oxygen, all of that oxygen can quickly diffuse into the blood leaving nothing in the alveoli to help them stay open. By reducing the percentage of oxygen with normal nitrogen containing air, the nitrogen will remain behind and prevent the alveoli from collapsing as easily.
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