buona domenica: good Sunday (literal translation) or Enjoy your Sunday reply: grazie, buona domenica anche a te. (anche a lei: formal)

Buona domenica means "have a nice Sunday". Who says so wishes to you to enjoy this day.

a) Buona Domenica. b1) Grazie, anche a te! (b1) is our typical answer to (a). Other possibilities: b2) Grazie, anche a lei! (if you are in the /lei/ context) b3) Grazie, anche a voi! (if you are talking to someone with his/her family nearby) Note: in nowadays Italian /voi/ ALWAYS refers to plurality, don't use in the /lei/ context, referring to a single person.