I am writing some code to interface with a service that I do not have yet, so I am writing a simulator to attempt to de-risk some of the problems I might run into when I get
You're correct. Just Gzip the JSON string and return it.
Best reference for any REST implementation is the HTTP/1.1 RFC: http://tools.ietf.org/html/rfc2616
In short: yes, it's as simple as that. The response body just needs to be the gzip-compressed version of the normal response body.
This question may have some useful information for setting up your service.